Consumers make a slow return to spending

CONSUMERS, although still cautious, were more inclined to spend last month and are less pessimistic about the year ahead.

The latest KBC/ESRI consumer sentiment index rose to 61.9 in March. This compares to a figure of 59.4 in February and an all-time low of 39.6 in July 2008.

The survey noted that despite the pick-up, consumers remain “very cautious” and although there is little prospect of a spending spree anytime soon, there are signals of a turnaround in household spending.

KBC economist Austin Hughes said: “At the very least, however, these data point towards the possibility of a less awful outlook for consumer spending than seemed likely a couple of months ago.”

He said the March results suggest a “gradual if uneven improvement” in the mood of Irish consumers is being sustained.

“Perhaps surprisingly, Irish consumers were a little less concerned about their personal household finances and a little more inclined to spend in March. Interestingly, consumers felt their household finances had weakened in the past 12 months but they were slightly less pessimistic about the outlook for the coming year,” said Mr Hughes.

He said this was due to no tax increases in the last budget and the stabilising of wages.

“Outside the public sector, it appears that the bulk of wage cutting occurred in 2009. So, it may be that those consumers who still have private sector jobs are seeing some stabilisation in their after tax earnings after suffering a sharp drop in 2009.

“If consumers feel a little less concerned about their future spending power, the tight grip they have kept on their wallets for the past couple of years may begin to ease even if this is set to be a very gradual process.”

The index of current economic conditions increased to 87.6 from 78.8 in February, while the expectations index fell from 46.3 in February to 44.5, making it the most negative aspect of the survey.

David Duffy of the ESRI, said the improved results indicate that consumers’ perception of the current environment improved primarily due to a more positive perception of the buying environment for major household durables.

The survey found that 45% of respondents said now was a good time to buy big ticket items.

“This may reflect some impact from the car scrappage scheme as well as an increased willingness to spend on home improvements or heavily discounted furnishings and electrical products,” said Mr Hughes.

He said consumers remain apprehensive about the general economic outlook but less pessimistic about their own personal financial situation and how it is expected to evolve in the coming year.