Irish Economy
Irish Economy 2014; Consumer sentiment fell sharply in May
By Michael Hennigan, Finfacts founder and editor
Jun 9, 2014 - 4:40 PM

Irish Economy 2014: The overall KBC Ireland/ESRI Consumer Sentiment Index decreased to 79.4 in May, from 87.2 in April but up from 61.2 in May last year. The 3-month moving average fell slightly to 83.2 in May from 85.3 in April.

Commenting on the results David Byrne, ESRI, said: "Consumer Sentiment dropped in May, reflecting a dis-improvement in perceptions of the current economic environment and of the outlook for the next year.”

The index of current economic conditions fell to 90.6, from 97.0 last month. Households more negative about the current buying climate and about their financial situation compared with 12 months ago. The index of consumer expectations also fell; to 71.8 from 80.6 in April. This was mainly driven by a more negative perception of future household finances amongst consumers.

The Consumer Sentiment Index comprises two sub-indices; an index of consumer expectation that focuses on how consumers view prospects over the next 12 months and an index of current economic conditions, focusing on consumers’ present situation.

The Index of Consumer Expectations is based on consumers’ perceptions of their future financial situation, their economic outlook for the country as a whole and employment expectations. This sub-index fell to 71.8 this month, from 80.6 in April.

The Index of Current Economic Conditions is based on how consumers feel about their current financial circumstance compared to 12 months ago, as well as their perception of the current buying environment for large household purchases. The Index of Current Economic Conditions fell to 90.6 from 97.0 in March.

The data was obtained from telephone interviews during the first two weeks of the month with around 800 completed questionnaires. The data were re-weighted in line with gender, age and level of educational attainment  to ensure the data is fully representative of the national population of adults. Each index is calculated by computing the relative scores (the percent giving favourable replies minus the percent giving unfavourable replies (the balance), plus 100) for each question used in the different indices. Those who reply “Don’t Know”, “Remain the same” are excluded from the index calculations. Each relative score is rounded to the nearest whole number. The sum of the relative scores is then divided by the base period total for each index.

Austin Hughes, KBC Bank Ireland, added: “It is not particularly surprising that consumer sentiment weakened in May. The turnaround in the Irish economy is very uneven and many households remain under pressure. So we can’t expect a straight line improvement in confidence. That said, the scale of the drop in the sentiment index in May is much greater than might have been anticipated. It will probably require analysis of the next couple of months’ data to determine if this was an aberration or points to much poorer sentiment and some downside risks to consumer spending.

The size of the drop in sentiment last month is difficult to explain. It may owe something to a tendency for data series to throw up extreme outliers from time to time that reflects statistical ‘noise’ rather than a fundamental change in economic circumstances. This could have played some role in the May reading but we also think the election campaign and concerns about water charges and medical cards may have caused consumers to take a gloomier view. Through the survey period there was an intense focus on financial and economic strains that had been evident, albeit to a lesser degree, in previous surveys. Our sense is that this debate amplified consumer worries and prompted a sharp drop in confidence."