Consumer mood shows slight lift

THERE are indications that spending may not be as weak as feared with figures showing a slight improvement in consumer mood last month.

However, in sharp contrast, retailers remain pessimistic about the future with more than half rating the prospects for their business over the three months as poor or very poor.

The latest KBC Ireland/ESRI consumer sentiment index recorded its strongest reading last month since September 2010 to 50.3 compared to 48.7 in January and 59.4 in February, 2010.

The index hit an all time low of 39.6 in July 2008, but it is still well below the all-time high of 130.9 in January 2000.

KBC chief economist, Austin Hughes said the slight rise in consumer sentiment in February is surprising in the light of a lot of bad news during the survey period. He said the broad message is that consumers remain gloomy but sentiment is showing “tentative signs of stabilising”.

“The run-up to the election focused heavily on Ireland’s economic problems and we also saw downward revisions to growth forecasts as well as further increases in energy and food prices.

“In these circumstances, the marginal increase in sentiment hints that Irish consumers have prepared themselves for a lot of bad news. They may also have responded to evidence of stronger global growth as well as tentative signs of improvement in a variety of domestic economic indicators,” he said.

Mr Hughes said, however, that even after the slight improvement, current sentiment readings are far below the long term norm.

“So, it is clear that Irish consumers are fairly gloomy at present and, of course, they face further problems. In particular, looming ECB interest rate increases could take a further toll on confidence in the months ahead.

“That said, February survey results hint at some resilience in sentiment which might suggest spending may not be quite as weak as feared.”

The forward looking expectations index rose to 37.8 in February from 31.5 in January. The index of current economic conditions weakened to 68.9 in February from 74.2 in January.

Mr Hughes added that the looming rise in ECB rates could pose significant downside risks for consumer sentiment this year. “The key question is whether these might be offset by continuing signs of growth at home as well as abroad.”

However, he said that the February consumer sentiment results offer “some degree of encouragement” that consumers haven’t entirely given up hope in their own circumstances or those of the broader Irish economy.

Meanwhile, Retail Ireland director Torlach Denihan said retailers’ confidence in their own businesses is weak.

“Only 3% of respondents expect employee numbers to increase, with 43% expecting to reduce employment in the next three months and 54% expecting numbers to remain unchanged,” he said.