Consumers ‘better at managing money’

THE economic downturn has made consumers better money managers with the majority thinking more carefully about purchases.

Consumers still, however, remain negative and are showing little signs of an increased willingness to part with their cash.

The KBC/ESRI consumer sentiment index fell to 48.1 in October, compared with 52.4 in September and 54.2 in September 2009. The October reading still remains above the all-time low in July 2008 of 39.6.

Consumer spending is expected to fall by 1% this year, according to the consumer market monitor from UCD Smurfit Business School and the Marketing Institute of Ireland (MII).

This figure is considerably better than the 10% drop in overall spending for 2009 and shows consumer spending is stabilising. The monitor found people are becoming more price conscious, thrifty and better money managers with three out of four actively looking around for better value.

David Duffy of the ESRI said the decline in consumer sentiment in October is mainly due to a more negative perception of the outlook for household finances over the next 12 months. Nearly two thirds expect this to worsen.

The forward looking expectations index weakened to 28.8 from 37.9 in September but the index of current conditions, which includes consumers’ perceptions of the buying climate, improved to 76.7 from 73.8 in September, as consumers viewed the current buying climate more positively.

KBC economist Austin Hughes said: “It isn’t surprising Irish consumer sentiment weakened in October. A range of bad news on the economic outlook, banking costs and budget prospects have prompted a ‘fear factor’ among consumers who realise these developments will seriously damage their spending power in 2011.

“This meant the most negative element of the survey was the outlook for household finances.”

Mr Hughes said while the general tone of the October sentiment survey was negative, there were a couple of surprising positive aspects.

Consumers were marginally less negative about the outlook for jobs which he said could reflect the drop in the live register and the year on year decline in redundancies as well as some increase in new job announcements of late.

“Even more surprising was an improvement in the buying climate. This might be due to aggressive price discounts by retailers or possibly some ‘last hurrah’ spending before facing up to the looming pain of a very tough budget. This could suggest consumer spending might be more resilient than is currently feared,” he said.

“The key question is whether consumers have now fully priced in all the bad news. Their reaction to the four year fiscal plan and Budget 2011 will tell us whether the reality is more or less painful than the fears Irish consumers feel at present.”