Irish consumer sentiment improved in Apri

• Solid April reading suggests clear improvement in confidence underway.

• Care must be taken in interpreting meaning of seven year high.

• Modest gains prompt multi year highs in sentiment in several countries. This says more about how bad it’s been as how much things may be improving.

• Easing fears on Irish economic outlook support sentiment gain.

• Conditions brightening but many consumers still constrained.

• Consumers more cautious on personal finances than general economic outlook.

Irish consumer sentiment improved in April after a modest correction in March. The increase last month suggests that confidence among Irish consumers remains on a rising trend. The KBC Bank Ireland/ ESRI consumer sentiment index rose to 87.2 in April from 83.1 in March, pushing the index to its highest level since January 2007.

In describing these results, we need to strike a balance between recognising a clearly encouraging trend and not getting carried away by what is still a modest recovery from very poor circumstances. The details of the survey hint that the improvement in confidence remains uneven. Three of the five components of the sentiment index posted modest monthly gains in April and thereby outweighed marginal declines in the other two elements. So, the data imply a cautious improvement rather than a surge in confidence among Irish consumers.

The rise in Irish consumer sentiment in April mirrored similar increases in confidence measures in many other countries. The comparable US indicator rose to a nine month high, reflecting a healthier jobs market and stronger current economic conditions in the US. A clear but not dramatic rise in Euro area consumer confidence in April was sufficient to push that index to its best reading since October 2007, while the corresponding UK figure jumped to its strongest level since June 2007.

Given the pronounced weakness of recent years, even modest increases in confidence of late in Ireland and elsewhere have been enough to drive sentiment indices to multi-year highs. So, we must be careful in interpreting how the circumstances facing consumers are changing. Clearly, consumers are less apprehensive than they were and there is a sense that the broad economic climate is on the mend. However, the relatively modest trend increases in sentiment indices in several countries imply consumers do not sense any dramatic improvements in their fortunes at present.  It is clearly good news that things are getting better but the multi-year highs now being  achieved say more about how poor sentiment has been in recent years rather than how confident consumers are at present.

A notable feature of the April results is that Irish consumers felt more positive about Irish economic prospects than at any time since December 2006. As has been the case for the past few months around 51% of respondents expressed the view that the Irish economy would improve in the coming year. However, the number of respondents who expect Irish economic conditions to worsen fell from 24% in March to just 14% in April.

What makes this result particularly noteworthy is that preliminary growth data for 2013 released between the March and April surveys Irish Consumer Sentiment Improves Again In April13 May 2014 3 showed an unexpected negative GDP outturn for last year. It would have been understandable if this had prompted a poorer reading in this element of the sentiment survey last month.  However, it may be that commentary emphasising exceptional influences on the disappointing 2013 outturn succeeded in easing concerns about the current trajectory of the Irish economy. Reasonably positive forecasts released by the Central Bank and ESRI through the survey period may have played some role in this regard.

Interestingly, Irish consumers’ views about the outlook for jobs changed little in April in spite of a range of new job announcements throughout the survey period. This aspect of the survey has improved markedly through the past couple of years. With this in mind, it may take a notable step-up in hiring and, perhaps, some sense of increasing earnings to prompt a further substantive increase in this element of the survey.

Consumers’ assessments of their personal finances threw up a slightly surprising result in April with views on the past twelve months improving markedly and views on the next twelve months largely unchanged. One possible interpretation would be that this outturn reflects some element of catch-up in the backward –looking element, perhaps because of greater confidence about property values or job security.  Meanwhile the forward looking element may have been weakened by uncertainty about the precise nature and scale of household water charges. On a positive note, there was some small improvement in the buying climate element of the survey after a significant pull-back in March.

On balance, it remains the case that survey responses are altogether more positive about the general outlook for the Irish economy than they are about their personal finances. Three times as many consumers expect the Irish economy to improve in the next twelve months as expect their personal finances to improve (51% positive responses against 17% to the respective questions).  So, it would seem that the recovery is predominantly something Irish consumers are reading about rather than experiencing at first hand.

We would emphasise a continuing improvement in sentiment as pointing to an ongoing if modest recovery in the circumstances of the average Irish consumer. If it says something about an improving trajectory, it is also hugely shaped by consumers’ very painful experiences of the past six or seven years. For this reason, we don’t think the fact that the index has reached its best levels since early 2007 should be read as suggesting that Irish consumers are extremely comfortable or exceptionally confident at present. Instead, the encouraging news is that consumers feel things are moving in a broadly positive direction.