Consumer confidence hits two-year high

CONSUMER confidence hit a two-year high last month but analysts caution that this should not be seen as an indication that the economy is getting stronger.

The KBC/ESRI consumer sentiment index hit 64.6 in January from 53.3 in December. This is the highest level since January 2008 but it remains well below its 14-year average of 92.4.

The figures “suggest a clear brightening in the mood among Irish consumers” said KBC Ireland chief economist Austin Hughes who added that there may be a “significant correction in February data as Christmas sales end and Christmas credit card bills arrive.”

“There is little question that the improvement in sentiment was substantially boosted by the strongest gain in the buying climate on record.

“Evidently, consumers were encouraged by what seems to have been very aggressive price discounting in the winter sales.

“These results may also reflect a somewhat broader sense of relief at indications of a bottoming out in economic activity and, perhaps, the absence of further income tax increases in Budget 2010,” he said.

Mr Hughes said he was advising against inferring that the improvement in the buying climate suggests pent-up demand is about to be released in markedly stronger consumer spending in early 2010. The measure of how consumers view their current situation improved to 87.7 in January from 73 in December. The gauge of consumers’ expectations rose to 49 from 40.1, the highest in almost two years.

The 11.3 point increase was also the strongest monthly change since a similar rise in December 2004. Just over 40% of respondents expect the economy to deteriorate further in the coming year while close to three quarters see unemployment rising further in the year.

“We think the significant message from the January survey is that it points towards a further easing in the terror that gripped Irish consumers in relation to the outlook for the economy in general and jobs in particular.

“Consumers are still cautious and with good reason but they began 2010 on a notably more positive note,” said Mr Hughes.

Commenting on the results, David Duffy of the ESRI, said the sharp improvement in consumers’ perceptions of the current environment reflects the view that January was a good time to purchase major items.

“Historically this component has improved every January, reflecting, at least in part, the winter sales, followed by a more subdued figure in February.

“We expect this pattern to continue and as a result some moderation might be anticipated next month,” he said.