Elections cause 'feelbad factor'

CONSUMER sentiment dipped for the first time in almost a year as the European and local election encouraged a "feelbad factor", the latest IIB Bank/ESRI Consumer Sentiment Index indicates.

And figures released yesterday by the Central Statistics Office show industrial production activity in Ireland has slowed substantially since the turn of the year.

The overall Consumer Sentiment Index stood at 90.1 in June, compared to a figure of 91.1 in May. The corresponding figure for June 2003 was 65.8.

While sentiment dropped this month, the three-month moving average rose to 90.6 from the 89.6 recorded in May. This shows a considerable improvement on June 2003 when the three-month moving average stood at 66.9.

IIB Bank chief economist Austin Hughes said the marginal fall in consumer sentiment in June is probably an overdue correction after a record 10 months of improving consumer sentiment.

"It also underlines that an improving 'macro' climate does not translate into much stronger spending power overnight. We think it could take some time for Irish consumers to notice a marked improvement in their incomes. As a result we don't think Irish economic growth will move to an explosive trajectory anytime in the near future.

"The poorer sentiment reading in June may also have been influenced by a number of specific factors. Sharp increase in petrol prices and fears of an eventual rise in interest rates could have prompted some downgrading of personal financial situations. Uncertainty about the implications of European and local elections results for Government policy may also have encouraged a 'feel-bad factor'," he added.

The Economic and Social Research Institute's (ESRI) David Duffy said the figures indicate consumer sentiment can be viewed as having remained broadly stable.

"The marginal decline reflects consumers becoming more negative about their financial situation, both the current situation and ... over the next 12 months. Thus, the index of current economic conditions declined to 95.8 in June from 99.3 in May," he said.

Mr Duffy said that, in contrast, the forward-looking expectations sub-index rose to 86.3 in June, from 85.5 in May. "The driver behind this improvement is a more positive perception by consumers of the outlook for the labour market," he explained.

Commenting on the fall in industrial production, Goodbody Stockbrokers' economist Dermot O'Leary said due to the volatility of the monthly data, they prefer to measure annual changes on a three-month average basis.

"Using this measure, total industrial production is growing by 3.8% year-on-year, on a seasonally-adjusted basis. There remains a dichotomy between the production of goods in the 'modern' sector and those in traditional industries. The 'modern' sector, which includes chemicals, IT equipment and electrical machinery, is growing at a relatively impressive 5.2% year-on-year. In comparison, production in all other sectors is now flat on a year-on-year basis," he added.