Consumer sentiment fell to its lowest level in almost four years as high-profile lay-offs, rising interest rates and weakening property prices raised consumer concerns about job prospects and household finances. Barry O'Halloranreports.
The IIB Bank and Economic and Social Research Institute (ESRI) Consumer Sentiment Index, which measures how people feel about their financial futures and current circumstances, dropped to 72 this month. This is its lowest level since the end of 2003.
The index is based on a survey of people's views of the prospects over the coming year, and their perception of their current situation.
IIB Bank chief economist Austin Hughes said yesterday that fears about employment had hit consumer sentiment. "Once again, the number of high-profile announcements heightened lay-off fears. The news that up to 900 jobs could go at Xerox was clearly an important factor. But broader concerns about job losses in the wake of the Aer Lingus decision to switch flights from Shannon to Belfast and further forecasts of heavy losses in construction employment also fuelled worries."
Mr Hughes added that three out of four Irish consumers expect unemployment to rise in the next year, compared to just 41 per cent in January.
He said the August response was the gloomiest since September 2003.
"If unemployment concerns were the main driver of poorer consumer sentiment in August, the influence of increased nervousness about rising interest rates and declining wealth was a close and worrying second," Mr Hughes said.
"Chief among these, we think, was the early August announcement by the European Central Bank (ECB) of its intention to raise interest rates further in September."
He explained that this was fuelling fears that the sequence of interest rate rises which started in 2005 would continue into 2008.
"Alongside this, a continuing weakening in house prices would have increased anxiety among many recent house purchasers."
The index includes what the bank calls two "sub-indices": one based on consumers' perceptions of their future (expectation), and one focusing on the present (current economic conditions).
Consumer expectation dropped to 58.2 in August from 63.9 in July. This was primarily due to people's fears about the labour market.
Current economic conditions rose to 92.4 in August from 90.8 in July. The improved sentiment resulted from the summer sales, during which consumers splashed out on big-ticket items.
Mr Hughes pointed out that consumers were similarly gloomy following the 2002 election. However, low interest rates came to the rescue at that point.
He argued that, in the absence of this remedy, Government initiatives were needed to shore up consumer confidence.
