The overall KBC Ireland/ESRI Irish Consumer Sentiment Index was higher in January at 64.6. This compares to a figure of 53.3 in December.

Commenting on the results David Duffy, ESRI, said:

• “The improvement in consumer sentiment improved in January brings the index to its highest level since January 2008, when the index value stood at 67.0. The reading of 64.6 in January 2010 compares to a reading of 39.6 in July 2008 when the index was at its all time low.

• “The sharp improvement in consumers’ perceptions of the current environment reflects the view that January was a good time to purchase major items. Historically this component has improved every January, reflecting, at least in part, the winter sales, followed by a more subdued figure in February. We expect this pattern to continue and as a result some moderation might be anticipated next month  ”

• “Although the overall index shows a strong increase the underlying figures suggest a more cautious optimism, with more moderate improvements across the other index components.”

In addition, Austin Hughes, KBC Ireland, added:

• “The scale of improvement in consumer sentiment in January looks too good to be true and it probably is but it would be wrong to concentrate solely on this aspect of the survey.  The January reading reflects an improvement in all 5 components of the survey – the first time this has happened in 4 years.  So, it seems clear that the mood of consumers is brightening, reflecting an easing in fears about economic prospects and perhaps a generally positive assessment of the December budget.  It should be noted that the January reading doesn’t suggest irrational exuberance has taken hold of Irish consumers.  Even after January’s increase, current levels of the survey suggest consumers remain fairly cautious but they are notably less pessimistic than they were.”

• “It is likely that the sharp improvement in the buying climate will be at least partly reversed in the February survey as Christmas sales end and bills arrive.  However, the scale of increase in this element last month may point to a slightly less gloomy outlook for consumer spending through 2010.  More importantly, it should be noted that the buying climate only accounted for about a third of the improvement in consumer sentiment in January.  So, the survey is pointing to a clear and broadly based pick-up in confidence.”

The data was obtained from telephone interviews during the first two weeks of the month with over 800 completed questionnaires.

Hughes also said that it is important to emphasise that the improvement in consumer sentiment in January was broadly based. The rise in the buying climate only contributed about one third of the overall gain in the Sentiment Index.  The other four elements of the survey all posted significant gains.  Indeed, in percentage terms, the improvement in consumers’ assessment of the outlook for the Irish economy was even greater than in the buying climate in January.  This presumably reflects the view that the worst is over for the global economy and, possibly, for Ireland.

Arguably, it might also hint that consumers take the view that Budget 2010 represents the right medicine for the Irish economy. He said the January results still imply a relatively downbeat view of Irish economic prospects.  Some 43% of respondents expect the economy to deteriorate further in the coming year while only 31% expect an improvement.  Some perspective on the extent to which an extremely gloomy outlook had become entrenched is indicated by the fact that last month’s reading was the strongest for this element of the survey since September 2007.  So, the January 2010 reading is probably best regarded as a rational easing in pessimism rather than the emergence of irrational exuberance.