Irish Consumer sentiment improved in September. The overall Consumer Sentiment Index stood at 45.0 in September, compared to a figure of 43.4 in August. The corresponding figure for September 2007 was 74.3. The 3-month moving average increased to 42.7 from the 41.7 recorded in August. The 3-month moving average stood at 73.6 in September 2007.

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 the present situation.
 
The Index of Consumers Expectations is based on consumers’ perceptions of their future financial situation, the economic outlook and employment expectations. The index value for September stood at 30.2 compared with 25.8 in August.
 
In contrast, consumers’ perception of their current situation dis-improved in September. The value for this particular index was 67.1 in September, compared with 69.4 in August. This is consumers becoming more negative in their perception of the current buying climate and their household financial situation.

Commenting on the results David Duffy, ESRI, said:

• The index shows an improvement in consumer sentiment in September, due to an improvement in consumer’s expectations for the next 12 months. Although sentiment has improved this should be viewed as tentative. Consumers continue to be concerned about current conditions.
• The survey was undertaken over the first two weeks of September and so it is likely that consumer sentiment was boosted by the upturn in general confidence that accompanied the rescue of Fannie Mae and Freddie Mac in the United States. However, the survey was completed prior to the financial markets turbulence of the last 2 weeks.
• The index reading of 45.0 compares with a reading of 74.3 in September 2007 and is well below the value of 67.0 recorded in January of this year.

In addition, Austin Hughes, IIB Bank, noted:

• While the increase in consumer sentiment in September was marginal, it is encouraging that it was the second increase in a row, the first time we have seen back to back improvements in confidence since May 2007. The gains likely reflect a sharp drop in oil prices and hopes for helpful action by policymakers at home and abroad.
• The October survey results could be markedly poorer in the light of the recent upheaval on global financial markets and increased nervousness about the Irish economy. These risks significantly increase the need for a carefully crafted budget as well as sensible global responses to the current turmoil.

Hughes said that the survey was compiled before the most recent bout of turmoil in financial markets. That said, this is the first time that back to back increases have been seen since May 2007. It implies that although Irish consumers remain extremely cautious, they are still open to good news. So, consumers may be down but they are not entirely out.

The main increase in the improvement in Irish consumer sentiment in September was a less gloomy outlook for household finances in the coming year. This probably owes a good deal to a sharp fall in oil prices over the survey period. Crude oil prices dropped from $121 per barrel in mid-August to $101 in mid-September. Not alone will this directly ease the squeeze on the spending power of Irish households but the associated impact on inflation makes an ECB interest rate cut more likely if still some distance away.