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Consumer sentiment slips for first time in five months

By August 24, 2023No Comments

Sentiment among Irish consumers slipped for the first time in five months this month, amid bad news on the jobs front, global economic difficulties and ongoing inflation pressures.

The drop in the Credit Union Consumer Sentiment Index may also reflect poor weather during the summer months, its author has suggested.

Economist Austin Hughes said the downward movement is not completely surprising.

“Consumers were gradually seeing their worst fears from last winter fade… there’s also been a very constant news flow saying that inflation is coming down,” he said. “But a little bit like our weather, they’re not seeing this economic and financial sunshine for themselves.

“Instead, in August, they got news of some major job layoff announcements – such as Accenture – some high-profile price increases, another ECB interest rate increase, and the weather won’t have helped either.”

The index, produced in conjunction with Core Research, fell to its lowest level in four months in August, with four of the five main elements weakening compared to the previous month.

The biggest drop in sentiment came in the section that measured the outlook for household finance over the next year.

This may be the result of consumers reacting to the pressures of the ongoing rising cost of living, Mr Hughes speculated.

There was some drop off in the two macroeconomic elements of the research, because of the ongoing narrative around interest rate increases and global economic challenges, Mr Hughes added.

The fall in the jobs part of the index was more pronounced, likely driven by ongoing redundancies at high profile companies such as Accenture, he claimed.

The only area where there was an uplift in sentiment was consumer spending plans, which rose month on month, although it still remains weak.

“It picked up from a very low base, and they were largely because more consumers felt now wasn’t a bad time to spend, rather than people felt it’s a good time to spend,” said Mr Hughes.

“I think it’s still muted – I think it also reflects the summer sales, and the fact that consumers have postponed major purchases for a long time and there’s various incentives around price discounts.”

The European Central Bank

In a special question, the research asked about the perceived effects of the ECB rate increases since last year.

63% of respondents said the rate rises have had a negative effect on their household finances, with over half of these claiming the impact on their personal finances had been “very negative”.

Almost three out of four consumers think higher rates will damage the Irish economy, with the majority of these suggesting the impact will be very negative.

However, one in 11 consumers think they will have a positive effect.

81% of respondents said they see higher rates adding to cost of living pressures, with just 5% saying they would reduce them.

While on house prices, 69% of consumers think there will be a negative effect on the value of property.

“I was surprised by how intense the results were,” Mr Hughes said, pointing out that even people without mortgages – including would-be buyers and even credit card holders – are being hit by the interest rate increases.

“Many of those who are saving for a pension would see asset values and discount rates moving in the wrong direction,” he said. “There’s a lot more than just mortgage holders hit, and that’s why we’re seeing a very strong negative reaction in terms of the impact of interest rates on the economy.”

Article Source: Consumer sentiment slips for first time in five months – Will Goodbody – RTE

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