Consumer Sentiment rose solidly in Dublin and Marginally in the rest of Ireland in the 2nd quarter of 2015.

Both in Dublin and across the rest of Ireland, consumer sentiment is now at its strongest since 2003, the earliest point for which this breakdown is available.

Household finances drove the latest quarterly sentiment rise in Dublin while jobs boosted confidence in the rest of Ireland.

Sentiment in the capital and elsewhere has followed broadly similar but not identical trends since 2003.

Boom years gave a bigger boost to sentiment outside Dublin while the recovery of recent years began somewhat earlier in Dublin.

Dublin consumers are much more upbeat on economy and jobs than consumers across the rest of Ireland but relatively cautious regarding their personal finances.

This note describes a new breakdown of Irish consumer sentiment into components focussed on Dublin consumers and their counterparts across the rest of Ireland. Data limitations preclude a more detailed breakdown of regions outside of Dublin at this time.

We provide a short analysis of recent trends in the main components of the index and how the data have evolved since 2003, the starting point of the survey.

The KBC Bank Ireland/ESRI Dublin consumer sentiment index is being released as part of the ‘Dublin Economic Monitor’ by the four Dublin local authorities. The index for the remainder of Ireland is presented for comparative purposes.

Trend in consumer sentiment has been broadly similar in Dublin and rest of Ireland but capital showing greater recent strength

• Through the first half of 2015, consumer sentiment has risen both in Dublin and across the rest of Ireland but the improvement in the capital has been somewhat stronger, particularly in the past three months.
• Through the entire period since 2003, trends in consumer sentiment in Dublin and elsewhere have been broadly similar as major changes in economic and financial conditions were felt right across the country. These have tended to dominate ‘local’ influences on sentiment.  
• There have been variations in the details of the survey on occasions that hint at clear differences in the way consumers in Dublin and the rest of Ireland have assessed both the economic environment and their own financial circumstances.    
• During the boom period, sentiment increased somewhat more outside Dublin, suggesting the changes in the circumstances of the average consumer in the rest of Ireland changed more significantly. The immediate aftermath of the downturn saw sentiment deteriorate more sharply outside Dublin than in the Capital.
• In recent years, sentiment has moved significantly if  erratically higher as consumers responded to an uneven recovery and a still uncertain economic outlook. At various times through the recovery the pace of improvement in sentiment has differed between Dublin and the Rest of Ireland.

Dublin consumers notably more upbeat about general economic outlook

• Dublin consumers have been notably more upbeat about the general economic outlook than their counterparts in the rest of Ireland for the past four years. This continued in the past three months, with 69% of Dublin consumers expecting the Irish economy to improve in the next twelve months compared to 57% in the rest of Ireland.
• Consumer thinking on the Irish economic outlook evolved in a similar way in Dublin and elsewhere between 2003 and 2008. However, a gradually more positive view of recovery prospects emerged much earlier in Dublin than elsewhere and this difference has widened noticeably since 2014.
• These readings appear consistent with other reports suggesting a ‘two-speed’ economy in recent years such as marked differences in the timing and pace of the turn in residential property prices.
• In turn, this may reflect the greater incidence of multinational companies and other export focussed activities in the Capital. It may also owe something to regional differences in the impact of cutbacks in public spending and the particular difficulties of the construction sector.

Consumers nationwide now confident about job prospects but Dublin notably more optimistic

• Dublin consumer thinking in relation to the outlook for jobs was largely unchanged in the past three months, with a solid majority expecting a further drop in unemployment in the next twelve months. Sentiment on jobs improved more clearly outside Dublin in the past three months as job growth outside the Capital accelerated (from+1% to+2.2%) and some easing in Dublin jobs growth occurred (from 2.7% to 2.1%).
• Through the 2003-2006 period, consumer sentiment in relation to jobs improved more outside Dublin. This may reflect the influence of the regional spread of construction activity and Public spending initiatives as well as the greater initial buoyancy of the Dublin jobs market.
• While the initial jobs impact of the downturn on jobs was felt similarly by consumers in Dublin and elsewhere, the more recent recovery in employment has been much more forcefully seen in the thinking of Dublin consumers than their counterparts in the rest of Ireland. The notable divergence seen through 2014 is consistent with the marked difference in the pace of jobs growth reported in official data for last year (Dublin +3.1%, Rest of Ireland +1.2%).

Consumers across the country remain cautious about household finances but a little less pessimistic  of late 

• Consumers in Dublin and in the rest of Ireland are a little less concerned about the way their personal finances have evolved in the past year than they were three months ago.
• Both in the capital and elsewhere, it remains the case that a larger number of consumers indicated their spending power has declined through the past year than reported an increase. So, there is still significant pressure on household finances even if the intensity of the squeeze has eased of late.
• Thinking on households’ current financial situation improved notably more outside the capital between 2003 and 2007 but broadly comparable peak to trough declines were reported in the two areas during the subsequent downturn.
• The improvement in consumer thinking in relation to current trends in personal financial circumstances has been broadly similar through recent years in Dublin and elsewhere. The pace of improvement in the capital seems to have caught up in the past year after a marginally faster pick-up in this component of sentiment outside Dublin during 2013.

Consumers now starting to become more confident about future spending power

• The past couple of quarters have seen a marked improvement  in expectations for household spending power in the next year both on the part of Dublin consumers and their counterparts elsewhere.
• A slightly larger number of consumers now expect an improvement in their personal finances than envisage a further weakening in the year ahead. Both inside and beyond the capital, expectations for spending power are quite mixed at present.
• However, this marks a notably change from strongly negative responses to this forward-looking question that prevailed back to mid-2007 in the case of Dublin consumers and early 2006 for household outside the capital. 
• Through the 2003-2007 period expectations for household finances improved more outside Dublin than in the capital. These results mirror consumer thinking in regard to jobs and past trends in household finances and CSO data that show a slightly greater increase in disposable incomes outside the capital between 2003 and 2008.
• In recent years, the improvement in expectations for household finances has increased notably faster outside Dublin than in the capital. This result may appear surprising because of notably stronger expectations for the Irish economy as a whole on the part of Dublin consumers than their counterparts in the rest of Ireland. They suggest that at the aggregate level, the Dublin economy may be outperforming the rest of the country but at the individual level, the average Dublin consumer does not feel this is translating into correspondingly stronger personal finances for them.
• At this point, we can only hazard some guesses as to what may be driving this divergence. It may owe something to perceptions that the incidence of various public charges may fall more heavily on Dublin residents or that they may not benefit as notably from a turn in public spending. It might reflect a view that because average incomes in Dublin are higher, proposed tax cuts focussed on lower incomes may not be as helpful. Finally, it could be the case that substantial increases in specific living costs such as housing may weigh far more heavily on the spending power of  Dublin residents than their counterparts elsewhere in Ireland.

Survey Notes

The KBC Bank Ireland/ESRI  consumer sentiment indices for Dublin and the rest of Ireland are quarterly series based on phone interviews with representative samples of consumers over the three months of the relevant quarter. As with the corresponding national survey, these regional sentiment indices are derived from responses given to 5 questions about the outlook for the Irish economy, the outlook for unemployment, recent and expected trends in household finances and the buying climate.

The data are obtained from telephone interviews during the first two weeks of each month of the quarter. The data are re-weighted in line with gender, age, economic status, level of educational attainment, region and household size to ensure the data was fully representative of the national population of adults. The sentiment index for Dublin is based on approximately 700 responses per quarter. The sentiment index for the rest of Ireland is based on approximately 1700 responses per quarter.

The Consumer Sentiment Index is calculated by computing the relative scores (the percent giving favourable replies minus the percent giving unfavourable 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.

It is envisaged that a short analysis of the latest trends in consumer sentiment indices for Dublin and the rest of Ireland will be released to coincide with future quarterly releases of the Dublin Economic Monitor.
 
For comments in relation to this analysis, please contact Austin Hughes, Chief Economist, KBC Bank Ireland phone 0876696972, E-mail austin.hughes@kbc.ie

This non-exhaustive information is based on short-term forecasts for expected developments in the economy and financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalised investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a judgment as of the date of the report and are subject to change without notice.