Irish consumer sentiment notably hotter in July

·? ??Consumer confidence hits 2 ? year high on easing in cost-of-living concerns and continuing economic gains

·? ?July sentiment reading still below long-term average suggesting consumer gloom hasn’t been replaced by consumer boom

·???????Spending climate stronger on improving incomes and increased holiday spending plans??

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?? ?Summary

Irish consumer sentiment improved to its best level in two and a half years in July?as an easing in concerns around living costs and the ongoing resilience of the Irish economy prompted an improvement in spending plans.

With the July sentiment reading still lying slightly below the survey long term average,?this month’s results hint at an Irish consumer who is still cautious but also one who may be contemplating possibilities and concentrating less on downside risks?to the economy and household finances that have dominated consumer thinking in recent years.

As the smallest improvement in the July survey was in relation to the twelve-month outlook to household finances,?it doesn’t seem that the increase in consumer confidence was driven by expectations of a ‘giveaway’ Budget. However, a strong pick-up in spending plans likely reflects some seasonal effects related to holiday outlays-perhaps boosted by a desire to escape disappointing weather. ?

We would also caution that recent positive momentum in Irish consumer sentiment remains reasonably fragile and could prove vulnerable to setbacks in the event of negative economic news or financial developments in the months ahead. ?However, if the recent improvement is sustained, it suggests the possibility of an uplift in consumer spending in the second half of the year.

Irish consumers continue to look on the bright side of summer

The Credit Union Consumer Sentiment Survey (in partnership with Core Research)?shows an index reading of 74.9 for July, up from the June figure of 70.5 and marks the second monthly increase in a row after four successive monthly declines between February and May.

While there hasn’t been a dramatic change in consumer thinking of late,?two solid monthly increases in June and July have been sufficient to bring Irish consumer sentiment to its strongest level in two and a half years?(January 2022 reading 81.9) before the Russian invasion of Ukraine wreaked ?such damage on the global outlook and dramatically boosted living costs.

The sentiment survey reading for July 2024 suggests that the fear and financial strains of Irish consumers have eased significantly of late. However, the current index reading is still below the sentiment survey’s long-term series average of 84.4,?which implies that, despite a recent improvement, many Irish consumers are still burdened by significant concerns and financial costs.

Consumer mood mixed elsewhere

The further improvement in Irish consumer sentiment in July contrasted with another slight slip in the preliminary US consumer sentiment figure.?The authors of that report attributed recent weakness in US consumer confidence to ongoing inflation concerns and more general economic uncertainty ahead of the US presidential election (The US sentiment survey-completed before the recent announcement that Joe Biden was quitting the presidential race- also found that Donald Trump was more likely to win the election than Biden and was also judged by US consumers to be better for the US economy and household finances than Biden). ??

July also saw a clear improvement in the preliminary consumer confidence reading for the Euro area, likely reflecting some easing in cost-of-living pressures and a resilient jobs market in Europe.?At the margin, a 'feelgood factor' associated with the Euro'24 football finals may also have lifted the mood?among European consumers, particularly as there was a strong showing by the larger European countries.

UK consumer confidence increased fractionally in July with only two of five elements improving month-on-month. The main positive was an increase in spending plans that again could partly be associated with England's path to the final of Euro'24-the survey was completed by July 12th, two days before the Euro'24 final.? ??

Pick-up in Irish consumer confidence broadly based

In relation to Irish consumer thinking,?all five elements of July reading of the Credit Union Consumer Sentiment Survey (in partnership with Core Research) posted month-on-month improvements compared to June.?This suggests that rather than being triggered by one specific development, Irish consumers felt a broadly based upgrade of their economic and financial circumstances was warranted ?this month.

Both ‘macro’ elements of the sentiment survey improved in July, with a slightly larger gain regarding the general economic outlook than in relation to jobs. Official data showing the first full estimate of economic growth for 2023 were released midway through the survey period. As is often the case in these data, a mixed picture emerged with greater weakness in the multinational sector and greater strength in domestic activity last year than had previously been indicated. It seems unlikely that these data markedly altered consumer thinking on the general outlook for the Irish economy.

There were some plausible sources of improved thinking on Irish economic conditions during the July survey period. First of all,?Exchequer returns indicated continuing strength in tax revenues and a notable recovery in corporation tax receipts after some weakness earlier in the year.

A related development was the publication of the Summer Economic Statement that signalled both a capacity and a commitment to spend more on public services in coming years.

Finally, the victory of the Labour party in the UK general election in early July was widely heralded as offering the prospect of greater stability in the UK economy and a more positive attitude in relations with the EU, both of which would be positive for the Irish economy.

While Irish consumer thinking on the outlook for jobs also improved of late, a smaller gain may have reflected mixed news on the employment front. On the negative side, the IDA annual report signalled softer employment trends in the multinational sector, AIB announced further planned redundancies, and the survey period also saw the closure of Becton Dickinson in Drogheda and a small uptick in the unemployment rate in June. In contrast, there were a number of new job announcements, official data showed ongoing employment gains and income tax receipts suggested the jobs market remains robust.

Cost-of-living concerns ease and prompt boost in spending plans

Irish consumers assessment of their personal financial circumstances also showed a clear further improvement in July, building on gains in June. Although Kantar Worldpanel data suggested a slight uptick in grocery price inflation in July (+2.6% y/y v 2.5% in June),?official data showed food and energy prices both fell month-on-month in June while EU data suggested petrol and heating oil costs continued to edge lower?between mid-June and mid-July while diesel prices held broadly steady. ??

Consumers upgraded their thinking on how their household finances had changed in the past twelve months more than they did on the outlook for the next twelve months. This likely reflects the drop in inflation and pullback in energy costs in particular, with little expectation of falling prices in general or dramatically lower energy costs in the year ahead.

The more muted improvement in thinking on the twelve month outlook for household finances suggests no wild expectation of a large scale ‘giveaway’ Budget’?in spite of numerous references to such a prospect in the media through the survey period.

In this context, the scale of tax package proposed in the Summer Economic Statement is judged to be modestly ahead of the cost of indexation (if the full amount is used for income tax measures) while the proposed €1.8bn expenditure package is some way below the €2.3bn Social Welfare package announced in last October’s budget. ????

The strongest month-on-month improvement in the July sentiment survey was in relation to consumer spending plans. This likely reflects improving real incomes of late as inflation eased and wage growth improved as well as the prospect of a declining trend in borrowing costs in the wake of the ECB’s first rate cut in nearly five years.

Our sense is that significant price discounting in summer sales?after what has been a fairly weak first six months of 2024 for retailers?may also have boosted the buying climate element?of the survey.?We also think that?after the financial and travel constraints of recent years,?many Irish consumers were more inclined to focus spending on holidays this year and this may have given a possibly temporary boost to spending plans.

Overall, the tone of the July sentiment survey suggests that Irish consumers are a little less worried about the economic outlook and a little less strained in their household finances. If Ireland had qualified for the finals of Euro '24 and/or the weather was much kinder of late, warnings about overheating might even be merited!!! Hopefully, the Olympics will raise the mood of Irish consumers further in August.?

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 3rd- 15th July 2024.

?Note; The July reading of the Credit Union Consumer Sentiment Survey (in partnership with Core Research) contained several special questions intended to shed light on Irish consumers current thinking in relation to their wellbeing. A special report examining this topic will be released shortly.