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Strong increase in June sentiment survey suggests Irish consumers sense brighter days ahead

Posted on: 28 Jun 2024

  • Rebound in confidence reverses half of losses of previous four months
  • Lower fuel costs and ECB rate cut ease in cost-of-living concerns
  • Encouraging economic data also help but job outlook mixed
  • Special questions on how Irish consumers have handled cost-of-living difficulties;
    • 4 out of 10 consumers say household income now above living costs
    • Roughly 1 in 3 consumers say income and spending broadly balanced at present 
    • 1 in 4 consumers say current income inadequate for living costs
    • 13% of consumers say they have no difficulty with any area of living costs at present  
    • 31% of consumers say energy bills their biggest area of difficulty
    • 19% of consumers say grocery bills their biggest area of difficulty
    • 16% say housing costs their biggest area of difficulty  

Summary

The mood of Irish consumers brightened markedly in June as falling energy costs, lower ECB rates and several encouraging economic releases prompted a more favourable assessment of the outlook for household finances and the broader Irish economy.

The rebound in sentiment in June represents a clear turnaround from the downbeat tone of recent months. The uplift in sentiment in June reversed just over half of the cumulative losses seen in four consecutive monthly drops between January and May.

While there was a range of positive developments during the June survey period, none were particularly dramatic. It seems that a directional shift in cost developments and in related news-flow this month was sufficient to encourage a more confident Irish consumer.

Although the June sentiment reading still suggests Irish consumers face significant challenges and the improvement is still tentative, the tone of the survey hints that even modestly supportive developments in coming months could have a material positive impact on sentiment and spending.

Section I; June sentiment survey hints at hopes for brighter days ahead

Consumer mood mixed elsewhere

The improvement in Irish consumer sentiment in June coincided with a marginal improvement in consumer confidence across the Eurozone and a marked improvement in UK consumer confidence.

The drivers of the improvement in sentiment in Ireland and the UK in June were notably different. Unlike the Irish survey, the mood of UK consumers was primarily boosted by a notable upgrade of the outlook for the British economy that likely owes something to significantly less weak than expected economic data of late and, possibly, expectations of reduced uncertainty and greater stability once the upcoming general election is out of the way.

In contrast to developments on this side of the Atlantic, US consumer sentiment fell unexpectedly to a seven-month low in June. The drop reflected signs of weaker economic activity in the US of late against a backdrop of continuing price pressures that has seen previous hopes for early interest rate cuts disappear.

A brighter light but consumers not yet out of the tunnel

The Credit Union Consumer Sentiment Survey (in partnership for Core Research) shows an index reading of 70.5 for June, up materially from the May figure of 65.7. The June reading marks the first monthly increase since January following four successive monthly declines between February and May. However, the current level of the sentiment index remains some distance below the long-term series average of 84.5.

Overheated Irish consumers?

Just as a a directional shift in news-flow may have prompted less negative sentiment on the part of Irish consumers in June, it might be argued that the promise of better weather towards the end of the survey period could have sparked a sunnier disposition among Irish consumers.

Although this can't be ruled out entirely, it should be noted that weather fluctuations haven't tended to affect Irish consumer confidence in the past, partly because of the degree of variability in Irish weather conditions that is seen even across relatively small land areas or periods of time.

It should also be noted that markedly improved weather was only really seen in the final day or two of the June survey period while notably cooler than normal temperatures through most of the survey period could have 'dampened' consumer sentiment.

At the margin, it might even be suggested that the reasonably early start of summer sales, perhaps accelerated by disappointing weather earlier, may have been an element in the improvement in consumer thinking in June.

Improvement centred on household finances

There were month-on-month improvements in June in four of the five main elements of the Credit Union Consumer Sentiment Survey (in partnership for Core Research).  As the table above indicates, the exception was the outlook for jobs which fell fractionally, a result that suggests consumer thinking on the labour market was effectively unchanged.  This likely reflects contrasting news on the jobs front during the June survey period.

While the labour force survey for the first quarter of 2024 showed continued growth in employment, the pace was notably more modest than had been the case previously. In this context, seasonally adjusted data showed reduced numbers at work in seven out of fourteen sectors between the final quarter of 2023 and the first quarter of 2024. Although this is still consistent with a healthy labour market, consumer thinking in regard to job prospects was also likely swayed by news of further layoffs during the June survey period in sectors ranging from ‘Tech’ (PayPal) to Agri-food (Tirlan).

The other ‘macro’ element of the consumer sentiment survey that is focussed on the broader economic outlook saw a modest improvement in June after four months of decline. Much domestic commentary remains focussed on various ways in which a sharp deterioration in Irish economic conditions could occur but the June survey period saw positive news across a range of metrics.

An improvement in Multinational sector activity prompted a rebound in GDP in early 2024 and, arguably of greater importance, buoyant tax revenues for May across a range of headings suggest growth in incomes and spending as well as a recovery in Corporation tax receipts. Developments such as these appear to have encouraged an easing in consumer concerns about the economic outlook.

In stark contrast to the details of the rise in UK consumer confidence in June where the improvement was largely driven by a markedly more positive ‘macro’ view and thinking on household finances weakened, the uplift in Irish consumer sentiment in June was primarily driven by notably less negative thinking on household finances. A combination of factors may have led Irish consumers to a more positive view of their personal financial circumstances in June.

First of all, June saw a reduction in motor fuel prices after a significant increase through the earlier months of 2024. As responses to our special question in this month’s survey highlight (see below), high energy costs are the main focus of Irish consumers cost-of-living concerns. Hence, an easing in motor fuel costs, particularly ahead of the summer holiday driving season, is of some importance.

Second, food price inflation, again, as this month’s special question shows, a key cost concern for many households, has eased materially of late. Official data show the 12-month increase to May in food prices at 2.2% compared to a rate of 12.6% a year earlier.

Third, early June saw the ECB cut interest rates for the first time in nearly five years (and although just 25 basis points, this was the biggest cut in more than a decade). Coming two years after the start of the ECB ‘s most aggressive tightening cycle that saw a sequence of ten rate hikes raise official interest rates by 450 basis points, even the modest cut seen in June suggests circumstances for indebted Irish households may be starting to move in a more comfortable direction.

Fourth, the June survey period saw a notable increase in media commentary around the prospect of a ‘giveaway’ Budget in the Autumn because of the upcoming general election and the strength of recent tax returns. Our judgement is that, informed by the lessons of the financial crisis as well as more recent cost-of-living difficulties, Irish consumers would be keen to see policies that promise a sustainable positive path for living standards rather than large and accordingly less sustainable measures- consumers would likely opt for a 'get something' Budget over a 'giveaway' Budget.

The details of the June survey might suggest that Irish consumers are now travelling more hopefully rather than feel they have arrived in terms of a prospective easing in cost-of-living concerns. This can be seen by the degree to which the improvement in the June sentiment survey was centred on the twelve-month outlook for household finances rather than the trend through the past twelve months.

In turn, this fed into an even more modest improvement in spending plans in June.  Although the sentiment survey strongly suggests consumers feel things may get better, there is little sense that economic and financial strains have eased to the point where a substantial step-up in spending is now envisaged.

Section II;  The best of times or the worst of times, a tale of three consumers?

As usual, the questionnaire for the June reading of the Credit Union Consumer Sentiment Survey (in partnership with Core Research) contained several special questions intended to shed light on current consumer thinking on particular topics.

This month we focussed on the extent to which cost-of-living problems are still impacting Irish consumers. In ‘macro’ terms, Ireland has come through the cost-of-living crisis relatively well but does this mean that all consumers are now able to cope financially with their current circumstances and to a similar degree?

At the aggregate level, Irish household incomes were almost 9.9% higher in the first quarter of 2024 than three years earlier even after correcting for inflation. However, when account is taken of the increase in the number of households over this period, the ‘real’ or inflation-adjusted income of the average household is marginally lower than it was three years ago.

More importantly, just as the average Irish household contains 2.5 people, this summary measure is unlikely to adequately reflect the diverse nature of economic and financial circumstances of Irish households today.

To get a sense of how income and living costs have evolved of late across the spectrum of Irish consumers, the June sentiment survey asked consumers how they felt their household incomes now compare to their living costs. The responses shown in the table below hint at a broad three-tier grouping in terms of the current financial circumstances of Irish consumers.

Some 4 in 10 Irish consumers (40%) say their household income is above their spending at present. This response was slightly more common among Dublin consumers than elsewhere. It was clearly more common among male than female respondents. It was notably more frequently cited by those aged 65 than by other age groups (possibly partly due to the rigours imposed by a fixed income). Not surprisingly, the incidence of this response was positively correlated with higher incomes. It is important to note that of the group saying their household income exceeds outgoings, the vast majority say their income is only a little over their spending.

A further 1 in 3 consumers (36%) say their household income is broadly in line with their spending at present. There were no striking demographic variations in this response but it was slightly more prevalent among those aged under 25.

About 1 in 4 Irish consumers (24%) say their income does not cover their spending at present. This response was more frequently given by females than males, by those aged 45 to 54 and by those on low incomes.

Some sense of broad groupings in terms of current circumstances across the spectrum of Irish consumers can be seen in the range of responses. Not surprisingly these groupings broadly echo the responses to the special question in the May consumer sentiment survey which looked at variations in consumers capacity to cope with a financial emergency.

We might again repeat the labelling of the May survey findings in suggesting that those households where income exceeds spending might be deemed as comfortable, those whose income broadly matches their spending might be described as ’coping’ while those whose income currently falls short of living costs could be considered as ‘clinging on’.

This three-tier breakdown of the current financial circumstances of Irish consumers serves to explain why reported difficulties in getting a restaurant booking can co-exist with widespread restaurant closures, or why it may be difficult to get parking at Dublin airport when the latest data available (for January 2024) show 208k domestic electricity customers and 155k domestic gas customers in arrears.

It may be the case that some Irish households have been virtually untouched by cost-of-living difficulties but some of those households whose income exceeds or matches their spending at present might only have achieved this result by making very significant cutbacks.

For this reason, the June sentiment survey also contained a question asking consumers what areas of living costs posed the greatest difficulty for their households at present.
 

Responses shown in the diagram above suggest that balancing income and outgoings is a source of significant difficulty for most households with only 13% of Irish consumers saying they face no difficulty at present managing any area of their household spending. This response was notably more prevalent among those aged over 65 and those on the highest incomes.

The most significant area of difficulty facing Irish consumers at present, by some distance, is in relation to their energy bills. These responses are entirely consistent with the scale of increase seen in energy prices in recent years. Despite some significant recent pull-back in energy prices of late, the average cost of energy products consumed by Irish households was 43.7% higher in May 2024 than in May 2021.

In the same vein, 19% of consumers indicated that paying grocery bills was their most pressing problem. Again, official inflation data suggest this is not a surprising result. Inflation figures show that the price of food bought by Irish consumers in May 2024 was 20.3% higher than three years earlier.

For 16% of consumers, housing costs were the main source of financial pressure at present. CSO data show the average mortgage interest payment was 77.9% higher in May 2024 than three years earlier while the average rent paid was 24% higher.

These responses suggest, unsurprisingly, that the cumulative increases over the past three years in various elements of household costs are still putting significant pressure on many households. Although many households are now either seeing incomes slightly above or in broad balance with their spending, in most instances, they are still facing difficulty meeting some bills. In turn, this explains the still relatively downbeat consumer confidence readings in spite of the continuing resilience of the Irish economy.

Encouragingly, the improvement in Irish consumer sentiment in June suggests an increasing sense that financial pressures are set to ease further in the next twelve months. How exactly and to what extent that occurs remains to be seen.    

Speaking on the release of the May data and analysis, David Malone, CEO of the Irish League of Credit Unions noted; 'The clear improvement in Consumer sentiment in June is very encouraging after what has been a challenging period for most Irish households. Whether consumers are still dealing with difficulties from the cost-of-living crisis or now thinking about holidays or home improvements, their local credit union is on hand to help them on their financial journey.'

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. The survey was live between the 5th-20th June 2024.