Sales discounts fail to lift consumer sentiment

Discounting by retailers during the January sales created created a strong buying climate but the majority of Irish consumers remained deeply fearful for the economic prospects over the next 12 months, according to research published today.

According to the KBC Ireland/ ESRI Consumer Sentiment Index, consumer confidence dipped to 49.6 in January from 50.2 in December. The 50 mark separates growth from contraction.

While this is off record lows of 39.6 recorded last July, consumer confidence in the performance of the Irish economy over the next 12 months was the lowest on record, with 85 per cent of those surveyed  expecting a further deterioration.

Austin Hughes, chief economist of KBC Ireland, said sense of extra spending power due to price discounting for the post-Christmas sales and a fourth interest rate cut had been more than outweighed by concerns over job security and the likelihood of higher taxes.

He said the “torrent of bad economic news” during the survey period - which included the Dell layoffs and other negative employment news - contributed to this concern. Some 92 per cent of respondents believe unemployment will increase this year.

“It is hardly surprising that Irish consumers became more worried about broad economic prospects and the risk of joblessness in January,” Mr Hughes said.

Following another half per cent cut in interest rates by the European Central Bank earlier this month - bringing the cumulative decline to 225 basis points since October - it might have been expected consumers would see their personal spending power more positively, he said.

This had not happened because the “relentless sequence of downgrades to the Irish economic outlook” meant consumers were focusing more on macro trends, Mr Hughes.

He also suggested the uncertainty about the nature and effectiveness of the Government’s response to the deteriorating economic climate may have depressed consumer confidence.

“The drop in consumer sentiment in January is scarcely surprising given the range and extent of bad economic news of late.”

“If anything, the surprise is that the results were not even weaker given that we have seen consumer confidence post near all-time lows in countries as distant as the US, Japan and Iceland in recent days,” Mr Hughes said.

He added there was a risk that sentiment and spending could weaken further in the coming months.

ESRI economist David Duffy said January showed a small improvement in consumer perceptions of current conditions, due in part to price reductions due to the sales and the most recent interest rate cut.

“The improvement in consumers’ perceptions of the current environment reflects the view that January was a good time to purchase major items,” Mr Duffy said.