Consumer confidence rises in September

A more positive outlook for the jobs market and household finances helped consumer confidence improve last month, according to the latest IIB Bank and Economic and Social Research Institute (ESRI) consumer sentiment index.

However, the recovery from the near four-year low hit in August was slight, the survey of 800 consumers found.

The index, which measures how people feel about their current and future household finances and the general Irish economy, found that there was more optimism among consumers in relation to their personal finances, while sentiment towards the overall Irish economy worsened.

IIB Bank chief economist Austin Hughes said September's index reading of 74.3, up from 72 in August, was "a welcome respite" after four months of falling sentiment, but it was too early to say if the modest rise in sentiment in September signalled a turning point.

"Tentative signs that the seemingly relentless rise in borrowing costs might be coming to an end, coupled with a drop in inflation and the promise of lower electricity bills, were probably helpful influences," he said.

Worries about the housing market and the overall economy have not translated into fears for people's own financial situation. "While consumers may feel some nervousness in the pit of their stomachs, they're not indicating any further damage to their pockets," Mr Hughes said.

But Irish consumers have been cautious spenders in recent months and remain nervous, keeping a tight grip on their wallets in September. There was a bigger than usual deterioration in demand for big-ticket items during the month.

The slight rise in the consumer sentiment index follows a plunge in sentiment to its lowest point in almost four years in August, a month in which Xerox said it would let go up to 900 staff, and when there were concerns about heavy job losses in the construction sector after the traditional August builders' holidays.

A less negative view of the jobs market was the main driver of the improvement in consumer sentiment last month, according to ESRI economist David Duffy.

A number of new job announcements outweighed news of redundancies in consumers' minds, Mr Hughes added. These included medical technology group Kinetic Concepts (KCI), which announced it would create 250 jobs at a manufacturing plant in Athlone; software firms Blizzard and SolarWinds, which will create 100 and 75 jobs respectively in Cork, and financial services firm Fidelity, which will add 49 jobs to its workforce in Galway.

"With news on the job front mixed rather than unambiguously awful, it seems consumers scaled back the extent of their pessimism," Mr Hughes said.

But 71 per cent of the consumers surveyed still expect unemployment to rise in the next year, while just 13 per cent expect unemployment to fall.

Consumers' perceptions of the labour market and the broader economy echo forecasts made last week by the Central Bank.

It raised its forecast for unemployment next year to 5.3 per cent - up from the current projected rate of 4.7 per cent - and cut its predictions for economic growth from 5 per cent to 4.75 per cent this year and from 4 per cent to 3.25 per cent in 2008.

Despite an improvement in overall consumer confidence, sentiment towards the Irish economy as a whole slipped to its weakest reading since September 2003. As well as ongoing concerns about the housing sector, fears for the global economy intensified last month as more high-profile casualties of the "credit crunch", or the shortage of liquidity on international money markets, emerged.

However, the interviews for the consumer sentiment index took place before financial problems at Northern Rock led to a run on the bank from its savings customers in Britain and Ireland.