Irish consumer sentiment held broadly steady in March

• Marginal rise in Consumer Sentiment Index in March to 60 from 59.4.

• Some easing in concerns about Irish economic outlook and jobs market…

• …but signs of modest improvement in economy not boosting household incomes.

• Worries about personal finances persist, meaning consumers remain nervous.

• March data point to a still cautious consumer but buying climate shows a surprising improvement.

Irish consumer sentiment held broadly steady in March as slightly more positive views in regard to the general economic environment were offset by increased concerns about household finances. In very broad terms, it would seem that any boost to confidence from the promissory note deal was offset by worries about the looming property tax and Public Sector pay cuts.

The KBC Bank Ireland/ESRI Consumer Sentiment Index rose marginally to 60.0 from 59.4 in February. However this increase is too slight to be seen as signalling anything other than a broadly unchanged degree of confidence among Irish consumers. The three month moving average of the series normally provides a clearer indication of the underlying trend. However, the jump in this aggregate from 57.8 in February to 61.2 last month largely reflects the influence of an unusually weak December reading falling out of the three month measure between February and March. As a result, we don’t think this signals any clear improvement in trend of late.

The relatively flat Irish sentiment reading in March was broadly consistent with the behaviour of similar indicators for many other countries last month. So, it would appear there were no seismic changes in the global economic environment through the March survey period. The comparable US index compiled by the University of Michigan increased marginally from 77.6 to 78.6. Although the overall reading was largely unchanged, this too was the product of conflicting influences. American consumers were buoyed by signs of improvement in both the jobs market and in house prices. However, their spending power remains constrained by meagre pay increases and a recent rise in taxes. So, like their Irish counterparts, US consumers may have sensed a generally improving macroeconomic environment but did not see this translating into an immediate improvement in their living standards.

Euro area consumer confidence was also effectively unchanged in March with the Confidence Index produced by the EU Commission reported at -23.5 compared to -23.6 in February. In broad terms, Euro area consumers were slightly more apprehensive about the next twelve months but still felt that the buying climate had improved marginally in the past twelve months. Probably the most surprising detail of this report was the slight improvement reported in sentiment among Cypriot consumers driven by expectations of an improving economic climate. Significantly, the survey was taken before the preliminary ‘bailout’ deal was announced. So, a marked deterioration in this element seems likely when April results become available. Arguably of greater interest is whether this spills over into a more broadly based deterioration in confidence among consumers in other European countries.

Irish Economic Views Modestly Positive…

As noted above, a broadly flat headline figure for Irish consumer sentiment in March conceals a notable split in consumer views between what is happening in the Irish economy as a whole and what is happening to their own living standards. The survey period saw a number of encouraging developments on the ‘macro’ front. Employment data showed jobs growth in the Irish economy on both a quarterly and annual basis for the first time since the crisis began while numbers on the live register fell for an eighth successive month. Ireland’s Euro partners also agreed in principle to a deal to extend the maturity of bailout loans that together with the previous month’s deal on the promissory notes should help ease the national debt burden in coming years.

While there was some improvement in ‘macro’ sentiment in this survey, it should be emphasised that it was relatively modest. There is no sense from these data that consumers feel that Irish economic activity is moving onto a notably stronger trajectory or that the prospective easing in the debt burden represents a dramatic change in this country’s financial fortunes. Instead, the March reading suggests consumers feel that recent developments point towards some easing in the forces retarding Irish economic growth at present.

…But Money Worries Remain

While the survey found some drop in concerns about the Irish economy of late, consumers remain worried about the outlook for their own household finances. Two developments during the survey period may have contributed significantly to this result. First of all, the survey period saw a marked step up in media focus on the local property tax as consumers awaited the delivery of letters setting out estimates of individual property tax bills. With most households liable to a not insignificant property tax bill in the second half of the year, the reality of this further hit to spending power in coming months likely weighed on many consumers. As with the impact of Budget 2013 in the latter stages of last year, it may be that consumers are reacting to the property tax in several stages; initially in response to the general announcement of the measure and later when specific details as they apply to individual households become known. So, it appears that households don’t fully discount the effect on their financial situation when the initial announcement is made. This double impact may reflect the degree of strain being felt in relation to household finances by many consumers at present.

A second development that likely influenced the weaker household finances reading in March was the outline of the proposed cuts to Public Sector pay under the ‘Croke Park 2’ negotiations. In the same way that job loss announcements have a wide-reaching effect on sentiment among those still employed, the prospect of significant pay cuts for many Public Sector employees under the new proposals likely resounded with many workers in the private sector. With austerity measures likely to subtract from the spending power of Irish households for some time, it is scarcely surprising that Irish consumers were gloomier about the outlook for their personal finances in the March survey.

Better Buying Climate Unlikely To Signal Rebound In Spending

In view of the weaker readings on household finances, it seems surprising that the March survey also found that consumers felt the buying climate improved last month. This result may reflect some seasonal spending ahead of Easter in response to a range of discounted offerings from businesses. It may also reflect a willingness to spend ahead of an expected drop in spending power later this year. Finally, because the result largely reflected an easing in negative responses rather than any significant rise in positive responses, it may owe something to the end of the heightened pressures caused by post-Christmas bills. However, we would emphasise that this area is the most volatile element of the survey and we don’t think it should be interpreted as signalling a notably improved environment for retailers. That said, it may suggest some prospect of a levelling-off in Irish consumer spending through the Spring months.