Feelgood factor dips in February

CONSUMER sentiment dropped unexpectedly in February from a four-year high in January and eroded retailers hopes of a spending boom until SSIAs (Special Savings Investment Accounts) begin to mature next year.

The overall IIB Bank/ESRI Consumer Sentiment Index fell to 99.5 in February, down from 106.8 in January of this year.

IIB Bank chief economist Austin Hughes said despite the fall in sentiment in February he thinks the underlying trend in both consumer sentiment and the broader Irish economy is improving. However, he believes the February data suggest we may still be some distance from a spending boom.

“It may be the case that Irish consumers have not seen their personal financial circumstances improve to the extent suggested in bullish economic forecasts. A ‘show me the money’ attitude could mean sentiment might remain vulnerable to occasional setbacks until household spending power picks up sharply. That might not be until SSIA’s begin to mature.” The ESRI’s David Duffy said that some decline in consumer sentiment was anticipated at the time of the sharp improvement in consumers’ perceptions of the current environment in January.

“In the past consumers have become more positive about purchasing major household items every January, reflecting, at least in part, the winter sales, followed by a more subdued figure in February. This pattern has continued, contributing to the moderation in consumer sentiment. The index of current economic conditions fell to 107.5 in February from 115.5 in January,” he said.

Mr Hughes said he thinks the volatile pattern of sentiment survey results in recent months testifies to the absence of a clear catalyst for the emergence of a pronounced feel good factor among Irish households.

“A clearly improving economic climate has yet to translate into a marked improvement in discretionary spending power. So, Irish consumers have yet to see convincing evidence in terms of their own improved personal circumstances of the boom predicted in so many economic forecasts,” he added.

Nevertheless Mr Hughes remains positive on the outlook for Irish consumer sentiment and the broader economy but said, the February sentiment survey readings suggest the economy is still lacking the type of tailwind that would deliver a broadly-based spending boom. “The looming maturity of SSIA accounts appears the most likely catalyst for a further substantial step-up in sentiment and could correspond to ‘boom’ conditions across the Irish economy,” he said.