Irish consumer sentiment records first significant gain since May

General tone still cautious-Brexit risks postponed rather than cancelled

Forward looking elements improve most but jobs outlook hit by layoffs

Buying plans improve modestly suggesting consumer spending to strengthen ahead of Christmas  

Irish consumer sentiment improved notably in November as the reduced risks of a ‘crash-out’ Brexit and the reality of a still healthy Irish economy provided some relief from recent gloom. At current levels, the sentiment index is still pointing to a nervous Irish consumer but the bounce in confidence in the November survey hints that sentiment and spending could end 2019 on a positive note.

The KBC Bank Irish consumer sentiment index increased to 77.1 in November from the six year low of 69.5 recorded in October. The 7.6 point monthly rise was the first material increase in six months (a rise of  0.8 in June is effectively an unchanged reading).  Reflecting the pronounced downward trend of recent years and the singular lack of a major ‘feel-good’ economic event, the November rise is the largest monthly gain since the Christmas related 10.7 point bounce in January 2015. Moreover, it should be seen in the context of a 21.2 point drop in the index since June.

The improvement in Irish consumer sentiment in November was mirrored in better readings -albeit to a markedly more modest degree- in similar indicators for the US, the UK and the Euro area. Increased hopes for a trade deal between the US and China, the removal of the imminent threat of a disorderly Brexit, slightly healthier readings in a range of economic indicators globally and a stronger performance by equity markets likely contributed to varying degrees to ease consumers’ worries in a range of territories.

All five main elements of the KBC Bank consumer sentiment index posted sharp monthly gains in November. This outcome appears consistent with the idea that Irish consumers were viewing their world through slightly less dark-coloured Brexit glasses as the immediate threat of a ‘crash out’ Brexit disappeared and were replaced by expectations of an orderly transition period through the year ahead.

The sense that Brexit is dominating Irish consumers thinking of late is also suggested by a comparison of recent monthly movements in the sentiment index and fluctuations in the Sterling/Euro exchange rate as illustrated in the diagram below. As currency moves have significantly reflected financial markets shifting assessment of progress and problems in respect of Brexit, the similarity between the judgements of Irish consumers and currency traders suggests how pervasive Brexit has been in the thinking of Irish consumers of late. Interestingly, however, the Irish consumer did not share the FX markets brief optimism when the initial March 2019 exit date was extended. So, for Irish consumers, thinking on Brexit reflects varying degrees of negative thinking rather than any notion of ‘two-way risk’.  

The improvement in Irish consumer sentiment in November was most marked in forward-looking areas of the survey although it should be emphasised that in each case the general tone is now less negative rather than clearly positive. The two elements that saw the biggest easing in nervousness were those related to the general economic outlook and prospects for household finances.

Interestingly, the third forward-looking element of the survey that concerns the jobs market rose but to a notably more muted degree. Our sense is that thinking on the employment/unemployment outlook was adversely affected by a several announcements during the survey period signalling significant job losses. These significantly offset an unexpected drop in unemployment to 4.8% in October and the now regular flow of new job announcements.  It is notable that while many recent reports point towards difficulties firms are having in dealing with skill shortages, the ‘average’ Irish consumer is still focussed on the risk of job loss. As is the case for the Irish economy as a whole, these results suggest conditions vary widely across what in effect are a wide range of jobs markets even if official data suggest a broadly based recovery has taken hold.  

November saw clear improvements in consumer thinking on their own household finances both in relation to the past twelve months and the year ahead. While official data published through the survey period point towards rising incomes and subdued inflation, we think the main driver of the change in November was a scaling -back of Brexit worries.

Again, it should emphasised that household finances elements of the November survey reflect an easing in worries rather than a sense that all is wonderful; Brexit may have been postponed (again) but it hasn’t been cancelled. As a result, the pick-up in consumer spending plans  was relatively modest. This chimes with monthly drop in official retail sales data for October. However, this may also owe something to a postponement of spending until ‘Black Friday’ deals materialise. More significantly Irish consumers face into Christmas with the reality of strong employment and rising spending power offsetting now less immediate risks around Brexit. This may translate into healthier sentiment and consumer spending in the very near term.