Irish Economy 2012: The overall KBC Bank Ireland/ESRI Consumer Sentiment Index increased to 62.3 in June from 61.0 in May. The Index for June 2011 was 56.3. The 3-month moving average rose to 61.9 in June from 61.4 in May.

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 Consumers 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 decreased from 50.6 in May to 49.5 in June.

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 increased to 81.4 in June from 76.4 in May.

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 Eddie Casey, ESRI, said: 

• “The latest Consumer Sentiment index reveals a slight increase in June, with most of the previous month’s decline having been reversed. Despite some recent hesitation, the broader trend reveals a gradual recovery in sentiment since the end of last year.

• “In June, an increase in the current economic conditions sub-index more than offset a modest decline in the forward-looking sub-index. Overall, the improvement in sentiment appears to have reflected less negative perceptions of the current environment, with consumers reporting a slight improvement in the buying climate and their financial situations.

• “Consumers remain concerned that the economic outlook remains fragile, however, with a downward revision to the expectations for employment and the general economic environment weighing on the increase in sentiment in June.

•  “The index of current economic conditions rose to 81.4 in June from 76.4 in May, while the index of consumer expectations fell to 49.5 in June from 50.6 in the previous month.”

 In addition, Austin Hughes, KBC Bank Ireland, noted: 

• “The fact that the rise in sentiment in June largely offset the decline in May emphasises the patchy nature of the improvement in the mood of Irish consumers through the first half of 2012.  In view of the difficult and uncertain economic backdrop facing Irish consumers, this sort of jagged pattern about a modestly improving trend is probably as much as can be expected.  If sentiment continues to improve modestly through the remainder of 2012, this would seem consistent with a gradual stabilisation in consumer spending.”

• “The June results show a divergence between the greater concern expressed about the broad economic outlook and a little less pessimism in relation to households’ own financial situations.  This may reflect a ‘silver lining’ in terms of lower oil prices and a possible drop in borrowing costs that accompanied darker Euro zone clouds.  It should also be noted that the improvement in sentiment in June largely reflects a drop in negative responses rather than any marked increase in positive replies.  So, there is no sense Irish consumers expect any dramatic improvement in their circumstances that would prompt much stronger spending.”

Hughes added: "The slight rise in Irish consumer sentiment in June was at odds with a deterioration in similar indicators for the US and the Eurozone. The comparable US indicator, compiled by the University of Michigan, dropped to its lowest level since December. However, this was the first decline reported in the past ten months during which time the Index climbed to a five year high. So, the factors influencing the mood of the US consumer of late appear somewhat different to those weighing on their Irish counterparts.

The Euro area confidence gauge weakened somewhat in June. Uncertainty over the future of the single currency area combined with the near certainty of further budget austerity implies poorer prospects for European consumers. So, their mood has remained relatively downbeat through the first six months of this year. Compared to results for the Euro area, the slight improvement in Irish Consumer Sentiment in June is encouraging and probably reflects different judgements on the part of consumers in Ireland and elsewhere on the implications of the broadening of the Euro area crisis in the past year or so."

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