Steady but subdued sentiment reading for September 2024

Posted on: 27 Sep 2024

Steady but subdued sentiment reading suggests Irish consumers expect modest income boost but want major infrastructure step-up in upcoming Budget

• Fractional dip in confidence in September hints that Irish consumers remain in a ‘watch, wait and worry’ mode in September.
• Survey details suggest strongly opposing influences acting on economic and financial circumstances at present
• Resilient economy and employment significantly countered by growing global gloom and further spate of redundancies here
• Less negative readings on household finances suggest that worst may be over but any current improvement may be inadequate for many
• Little sense that consumers are planning a ‘giveaway’ Budget spending surge
• Special survey question focusses on consumers priorities for Budget ‘25
  • Health and housing infrastructure seen as key priorities for Budget
  • Cost-of living supports also emphasised……
  • …. but ‘giveaways’ seen as far less important than ‘build today’   

Summary

A broadly unchanged sentiment reading for September signals no marked change in the mood of Irish consumers of late but hints that Irish consumers are in a ‘watch, wait and worry’ mode at present.
Increasing uncertainty about the global economic outlook, ongoing fallout from the cost-of-living crisis, further high-profile redundancy announcements and sharply divided views as to what the upcoming Budget could and should do mean that the average Irish consumer is now confronted with a confusing and concerning picture. 
In contrast to clearer if widely varying moves in similar confidence metrics for other countries in September, the largely unchanged Irish sentiment reading this month suggests Irish consumers are grappling with the impact of strongly opposing influences on their economic and financial circumstances at present. This might suggest a pivotal role for the upcoming Budget in framing the feelings and finances of Irish households in the months ahead.

Section I; September sentiment survey hints that Irish consumers confused between problems and progress

Recent months mark an obvious improvement from the depressed level of sentiment readings seen through 2022 and 2023 and suggest Irish consumers feel things are not getting notably worse, but there is little sense that in the past couple of months Irish consumers believe things are clearly continuing to get better.  
The sense of being in an economic ‘limbo’ at present is also hinted at in the September index at 71.9 falling some distance short of the long-term survey average of 84.4.
 
Policy makers influencing the varying moods of consumers elsewhere
In contrast to the effectively unchanged Irish reading in September, there were clearer movements in corresponding surveys for other countries. In the US, the preliminary reading of the University of Michigan consumer sentiment survey reported a second consecutive monthly increase to the highest level since May.
The US report’s authors cited an improvement in the outlook for household finances and the economy in spite of a weaker employment outlook and elevated uncertainty ahead of the November presidential election. Our sense is that the wide-held expectation of the first cut In US interest rates in four and a half years, duly delivered on September 18^th also assisted sentiment.  
In the Euro area, the early September reading saw a reversal of the weakening in confidence in August notwithstanding a generally weak tone to most recent activity data. The EU Commission noted that the latest reading meant consumer confidence had almost caught up with its long-term average. Again, a September interest rate cut likely helped as did a trend easing in inflation as well as softer energy prices of late. 
In the UK, consumer confidence unexpectedly tumbled in September to its weakest reading since March with sharp falls in the outlook for the economy, household finances and major purchases driving the decline. 
Fears of the prospect of a very tough UK Budget on October 30^th were seen as central to the drop in UK consumer sentiment, with the Financial Times quoting Andy Haldane, former Bank of England chief economist, telling Sky News that the government had “generated a fear and foreboding and uncertainty among consumers, among businesses, among investors in UK plc”

Mixed survey details suggest contrasting factors influencing Irish consumer thinking
Three of the five main elements of the Credit Union Consumer Sentiment Survey (in partnership with Core Research) posted month-on-month gains in September while the remaining two posted declines. In all instances, the changes were modest but the sum of the two declines was slightly larger than the three increases, leading to a fractional drop in sentiment overall.

Irish consumers assessment of the twelve-month outlook for the economy improved marginally. Most domestic data remained broadly positive with the survey period seeing very strong tax receipts and somewhat mixed national accounts data. However, much of the pre-Budget commentary centred on the risks of a sharp deterioration in future conditions while commentary around the Apple tax judgement emphasised risks to Ireland’s multinational sector.

Concerns around the global outlook grew during the survey period, with difficulties in major economies such as the US, China and Germany commanding attention as did threatening fiscal and growth dynamics in the UK. 
Although Irish consumers were marginally less worried about the outlook for activity, they were somewhat more concerned about the prospects for employment in September. The jobs element of the sentiment survey has underperformed other elements of late in spite of low unemployment, sustained growth in numbers at work and anecdotal reports of labour shortages in many areas.
It might be suggested that the particular strength of the jobs market at present means consumers are more likely to see it softening in the next twelve months but there are stronger arguments for the weaker September reading. First of all, the latest monthly payroll data from the Central Statistics Office show the number of employees falling slightly between June and July, with 10 out of 15 sectors across the Irish economy recording lower payroll count.

Arguably of more immediate importance to consumer thinking, the September survey period saw several high-profile redundancy announcements, including Intel announcing details of severance packages and the closure of an R&D facility in Limerick, Cardinal Health closing in Tullamore, and Wasdell, a pharma packaging company, closing in Dundalk. 
While ‘macro’ concerns have played an important role, the key drivers of consumer sentiment in Ireland (and elsewhere) of late have been the dramatic changes in living costs in recent years and the policy measures implemented to address these changes.
 
Encouragingly, Irish consumers assessments as to how their household finances had developed over the past twelve months improved fractionally in September. This likely owes something to some combination of an easing in energy costs of late, a further cut in ECB interest rates in September and a continuing slowdown in inflation.   
It should be noted that the September reading overall suggests that more Irish consumers are still of the view that their household financial circumstances have worsened over the past twelve months than believe they have improved.
 
Are Irish consumers scared, struggling or simply not seeing how good things are?
In light of significant media commentary suggesting that household incomes have increased of late and buoyancy in some elements of consumer spending, it may be worthwhile teasing out what various indicators suggest in this regard. Are Irish consumers simply blind to improvement in their living standards or has a problematic gap opened up between the ‘macro’ and the ‘micro’?  
At the aggregate level, household disposable income was 1.9% higher in ‘real’ or inflation-adjusted terms in the first half of 2024 than a year earlier. However, the population also increased by 1.9% and the number of households somewhat faster again. On the relevant official data, it would seem that the spending power of the average Irish household has declined of late.

The same metrics suggest cumulative declines in average household spending power over the past three years to the point in early 2021 when Irish inflation began to accelerate markedly.  
The subdued sentiment readings also seem consistent with the broader sense of a prolonged and persistent erosion in living standards is suggested by recent ESRI research that suggests declines in average incomes in 2021 and 2022 were sufficient to leave them lower than they were two years earlier (Poverty, Income Inequality And Living Standards In Ireland: Fourth Annual Report ESRI September 2024).
Incidentally, this erosion of the average Irish households purchasing power occurred in spite of a significant boost from Government support measures. Although recent Central Bank research has been cited frequently in a manner that suggests Government actions left households worse off, the reality is that while although Government actions may have boosted prices modestly, the boost they gave to household spending power was materially larger and offset much of the adverse impact of the price shock from a surge in global energy and food costs and post-pandemic supply bottlenecks.
While media discussions around current conditions in the Irish economy also cite the IFAC pre-Budget report figure of a 9% increase in wages in Ireland in 2023 that might infer substantial after-inflation gains in incomes for many Irish consumers, less attention appears to be paid to the recent CSO release Earnings Analysis using Administrative Data Sources 2023.

Drawing solely on Revenue data, this metric indicates that average wages in Ireland increased by 3.7% in 2023, slightly less than the five year average gain of 4.3% while, because wages increased more rapidly for higher paid workers, the wages of the worker at middle of the earnings distribution grew only 3.3% in 2023, again slower than the five-year average increase of 3.9%, and well behind the average inflation rate of 7.8% last year.    
Of course, the experience of individual households through this timeframe is likely to vary widely, with some wondering crisis, what crisis? and others barely clinging on to financial survival.
With ‘average’ metrics suggesting some continuing loss in spending power, it seems likely, as the sentiment survey implies, that many of those on lower incomes and those with relatively large financial commitments in respect of housing and/or childcare costs may be continuing to struggle to make ends meet. At the micro level, undereating may be a more profound risk than overheating.
 
Few signs of a spending splurge
On a positive note, Irish consumers were less negative about the outlook for household finances in the year ahead in September than in August, although, again, more consumers see their household finances worsening in the next twelve months than see them improving.  
If we contrast the September sentiment readings for Ireland and the UK, it may well be that very different expectations around upcoming Budgets in the two economies play a significant role in shaping consumer thinking on the prospects for their personal finances.
The modest improvement in recent months in Irish consumer thinking in respect of their future finances, coupled with a second small monthly decline in purchasing plans in the September survey, does not suggest consumers see Budget ’25 as providing them with a marked improvement in living standards.  
As we previously noted, heavier spending commitments on higher energy usage as well seasonal outlays in the months ahead may weigh on buying plans as could uncertainty around the precise impact of Budget measures. So too, could a tendency to delay big ticket purchases until ‘Black Friday’ and other discounts materialise.    

The spending plan element like other aspects of the September sentiment survey might be seen as signalling that Irish consumers are still in a ‘watch, wait and worry’ mode.
Increased seasonal spending pressures, the continuing impact of the cost-of-living surge and uncertainty around the health of the global economy. In that context, the survey suggests a need for support and some clear signalling about the future path of the Irish economy in the upcoming Budget.
  

Section II   Budget ’25; Everything now or too little, too late?

As usual, the Credit Union Consumer Sentiment Survey (in partnership with Core Research) included a couple of supplementary questions on topics of current interest. As in September 2023, this month’s survey asked a representative sample of Irish consumers what they felt should be the priorities of the upcoming Budget ’25 which will be delivered on October 1st.
Consumers were asked to what they felt should be the three main priorities for the Budget package. So, the results shown in the table below show the number of consumers who gave each response as one of their three options. (Consequently, the total of responses sums to 300%).
The diagram below compares the Budget ’25 priorities given in responses to the September 2024 sentiment survey with those of a year ago in respect of Budget’24.

In both years, the main focus of consumers in terms of priority Budget measures is on infrastructure, particularly in relation to Health-cited as one of three priorities by 55% of consumers but also, increasingly in 2024, in relation to housing, cited by 47% of consumers compared to 39% a year ago.
While notably less prominent as a priority, there was also a significant increase between the two surveys in the importance of transport infrastructure, cited by 15% of consumers this year compared to 10% in September 2023.
Not surprisingly, cost of living pressures are also seen as a key priority that the upcoming Budget should address. Perhaps reflecting the cumulative strain of several years of elevated living costs, slightly more consumers cite this as a priority for Budget ‘25 than for Budget ’24. In contrast, and likely reflecting the recent pull-back in energy costs, the share of consumers focussed on specific energy-related supports has eased to 32% from 40% a year ago.
The survey strongly suggests consumers would hugely prefer a Budget centred on infrastructure ‘Build today’ rather than ‘giveaway’. 
In spite of a pronounced media emphasis and economic commentary on the prospect of a ‘giveaway Budget’, the focus of Irish consumers on tax concessions (cited by 26% of respondents) and increases in social welfare rates (cited by 19%) is marginally less now than that seen a year ago and amounts to only slightly more than a third of the responses prioritising infrastructure.
Survey responses also show a marked preference for an immediately increased policy emphasis on infrastructure shortcomings rather than prioritising stability of the public finances-cited as one of three priorities by just 13% or ‘overheating’ concerns -cited by just 12% is even more evident from the survey responses.  
In that respect, consumers are not looking at the Budget in terms of demand management but in terms of enhancing the economic and social capacity of the country. 
In the same vein, ageing impacts cited by 16% of consumers and, climate change-cited by 12%, are seen as less pressing issues than now longstanding shortcomings in relation to health and housing.
Some might suggest that these orderings reflect a lack of understanding of such risks on the part of Irish consumers or a failure to recall the recent financial crisis. Another view would be that consumers regard such threats as altogether less fundamental and damaging to future prosperity than current failings in infrastructure. 
The Credit Union Irish Consumer Sentiment Survey is a monthly survey of a nationally representative sample of 1,000 adults. Since May 2019, Core Research have undertaken the survey administration and data collection for the Survey. This tranche of the survey was live between the 4^th and 13^th September 2024.