This note sets out a brief introduction to the KBC Bank Ireland/ESRI Dublin consumer sentiment index which is being released as part of the ‘Dublin Economic Monitor’ by the four Dublin local authorities. We also provides a short analysis of recent trends in the main components of the index and how these relate to various economic variables. It is envisaged that a short analysis of the latest trends in Dublin consumer sentiment will be released to coincide with future quarterly releases of the Dublin Economic Monitor.

Dublin Consumer Sentiment Now Growing Strongly

• Dublin consumer sentiment improved sharply in early 2015 as optimism about economic conditions increased and the outlook for jobs brightened. The KBC/ESRI Dublin consumer sentiment index rose to 148.9 in the first quarter of 2015 from 132.1 in the final quarter of 2014.
• Importantly, Dublin consumers now expect stronger ‘macro’ conditions to translate into an improvement in their household finances in the next twelve months. So, the survey hints at an expected broadening of the recovery in Dublin.
• In the first quarter of 2015, the Dublin consumer sentiment index reached its highest level in the twelve years for which comparable data are readily available. The nature of the survey means it focuses on emerging trends rather than some absolute measure of confidence. So, these results suggest Dublin consumers feel the change in their personal financial circumstances and broader economic conditions are now developing in a particularly favourable manner.

Dublin Consumer Sentiment Similar But Not Identical To National Sentiment Index

• As might be expected, given Dublin’s importance to the broader Irish economy, trends in consumer sentiment in Dublin follow a broadly similar trend to those in the National sentiment survey.
• Dublin consumer sentiment was a little more negative in the early part of the downturn but it has improved  somewhat more than the national index in the interim to the point where it broadly mirrors  sentiment  across the Irish economy of late.

Better Sentiment Largely ‘Macro’ Driven

• As with the national survey, the  improvement in sentiment in recent years has primarily come about because Dublin consumers sense the economy as a whole is improving.
• The turn in Dublin consumers assessment of their own personal financial circumstances has been notably more extended and modest until relatively recently.
• However,  results for the first quarter of 2015 show a notable improvement in expectations for Dublin consumers’ household finances in the year ahead, presumably driven by the end of ‘austerity ‘ Budgets and the anticipation that growth in incomes will outpace inflation.

Improving Economic View Mirrors Pick-up In Domestic Activity

• The components of the sentiment index tend to mirror trends in relevant economic variables.  The views of Dublin consumers on the economic outlook have moved broadly in line with Domestic demand (as measured in official National Accounts data) in recent years.
• The most recent assessment by Dublin consumers of emerging economic  developments hints at continued strong economic growth in 2015.
• Dublin consumer sentiment in relation to economic prospects understated the buoyancy of domestic spending in 2003 and 2004 but anticipated the subsequent downturn and has broadly coincided with the pattern in domestic spending for the past five or six years.

Dublin Consumers See Jobs Market Improving Further

• The views of Dublin consumers on the unemployment outlook  tend to change in line with conditions in the Dublin jobs market.
• The jobs component of the Dublin consumer sentiment survey was the element that saw the sharpest decline through the downturn  reflecting the scale of layoffs and associated employment worries.
• Encouragingly, this  element has also seen the sharpest improvement in the more recent recovery phase.
• The early 2015 sentiment reading points towards continued strength in employment growth in Dublin through the coming year.

Dublin Household Spending Power Has Been Constrained

• Dublin consumers’ assessment of their current financial circumstances closely matched the sharp drop in spending power through the downturn (Using CSO data on county incomes which unfortunately are only available to 2012).
• The turn in consumer thinking in relation to their household finances has been more modest than the improvement in official data. However, the official numbers show only a marginal gain in 2012. Moreover, this element of consumer sentiment would include an assessment of the adverse effect of  various increases in  households living costs such as the property tax and other charges as well as other subjective influences on their standard of living.

Dublin Consumers Now More Optimistic About Household Finances

• Dublin consumers’ expectations for their household finances over the following twelve months have tended to move in a broadly similar direction to the trend in Dublin house prices. This likely reflects the importance of confidence to the housing market and the broader relation between purchasing power and the health of the housing market.
• In recent quarters the expected improvement  in Dublin consumers’ spending power has been far more modest than the trend in Dublin property prices. This reflects relatively modest income growth, continuing pressures on spending power and the particular buoyancy of Dublin housing prices.
• More generally, the divergence between Dublin consumers’ expectations for their household finances and housing prices emphasises that a complex range of influences combine to determine sentiment. So, we shouldn’t expect a constant mechanical relationship between sentiment and other economic variables.

Improved Buying Climate Hints At Stronger Dublin Spend

• Dublin consumers see the buying climate improving of late. As the graph across shows there has typically been a similar pattern in Dublin consumers assessment of the buying climate and the trend in consumer spending in the National Accounts.
• The early 2015 buying climate reading points towards a somewhat healthier pace of growth in the spending of Dublin consumers in the next twelve months.

Note: The KBC Bank Ireland/ESRI Dublin Consumer Sentiment Index  is a quarterly series based on 700 phone interviews with a representative sample of Dublin consumers over the three months of the relevant quarter. As with the corresponding national survey, the sentiment index is 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.