Irish consumer confidence fell in August. The overall KBC Ireland/ESR Consumer Sentiment Index stood at 61.4 in August, compared to a figure of 66.2 in July.

The corresponding figure for August 2009 was 48.7. The 3-month moving average slipped to 65.2 compared to the 66.5 recorded in July. The 3-month moving average stood at 50.5 in August 2009. The August reading remains above the all time low in July 2008 of 39.6.

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 August stood at 52.1, down from 53.1 in July. Consumers’ perception of their current situation also weakened in August, primarily due to a more negative perception of the current buying climate. The value for this particular index was 75.3, compared with 85.7 in July.

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 favorable replies minus the percent giving unfavorable 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.

Commenting on the results David Duffy, ESRI, said:

• Consumer sentiment weakened again in August. The decline is mainly due to a more negative perception by consumers of the current buying climate. This may well reflect a post-summer sales effect.

• In general consumers remain cautious. The forward looking Expectations index weakened to 52.1 from 53.1 in July, on the back of a more negative view of the outlook by consumers for the economy. Nearly half of consumers expect no improvement in the economy over the next 12 months.

• The Index of Current conditions, which includes consumer’s perceptions of the buying climate, weakened to 75.3 from 85.7 in July. Again this may be the result of a post-summer sales effect.

 In addition, Austin Hughes, KBC Ireland, noted:

• The broad message from the August sentiment data is one of renewed nervousness among Irish Consumers.  The main driver was a sharp pullback in spending intentions.  Because this is the most volatile element of the survey, it may be that last month’s drop was exaggerated.  However, it is clear that confidence remains very fragile and increased uncertainty is likely to make Irish consumers more cautious, implying downside risks to spending prospects in the months ahead.

• The weakening in the Irish consumer sentiment in August contrasts with improved confidence readings in many other countries.  So, domestic factors appear to have played the dominant role.  The pull back in the buying climate probably owes something to the end of the summer sales as well as holiday spending and back to school bills.  However, weaker sentiment probably also reflects a broader sense of unease that owes much to increased nervousness about the banking and budgetary outlook.

Austin Hughes additionally commented that the drop in Irish consumer sentiment in August contrasts with a slightly less gloomy mood among consumers in most other countries.  In the US consumer sentiment partly reversed the poorer trend reported there through the summer months although Americans continue to be concerned about weak income and job prospects.  In Europe, notably stronger economic growth contributed to a marked improvement in consumer confidence.  In the case of the Eurozone indicator, confidence is now slightly above the survey’s long term average largely as a result of particularly strong sentiment among German consumers.  Hughes said it would seem that the weakness seen in Irish consumer sentiment in August largely reflected domestic economic concerns.

He said the change in thinking on the economy and jobs was relatively modest while the deterioration in the buying climate was notably greater than might have been expected.  The economist said as spending intentions tend to be the most volatile element of the survey it may be premature to conclude that August marks a dramatic change in the mood of Irish consumers.  However, the survey clearly points towards increased nervousness among consumers.  The return of the fear factor may be related to nervousness about banking and budget cuts rather than notably poorer job or income prospects among Irish consumers.  While it may take another month or two of data to draw definitive conclusions in this regard, a clear message from the August data is that Irish consumer sentiment remains extremely fragile and continuity uncertainty about the course on which the Irish economy is set is likely to weigh on confidence and consumer spending in the month ahead.