Consumer confidence hits two-year high
CONSUMER confidence surged last month, defying continuing high unemployment and economic uncertainty.
The consumer sentiment index reached its highest level in two years, according to a KBC Ireland/ESRI consumer report.
The unexpected hike in the index has been interpreted as a sign that many consumers think the worst may be over for the economy.
The overall Consumer Sentiment Index stood at 64.6 in January, compared to a figure of 53.3 in December.
January sales meant consumers became more confident and went on a buying spree.
Winter sales usually lead to an improvement in the index in January, but KBC Bank economist Austin Hughes pointed out that there was a rise in all five of the measures which make up the mood index. This was the first time in four years it has happened.
However, he warned that consumer confidence might dip again this month when credit card bills arrive and the impact of lower pay in the public sector and social welfare cuts becomes clear.
"It seems clear that the mood of consumers is brightening, reflecting an easing in fears about economic prospects and perhaps a generally positive assessment of the December Budget."
He added that it was not a case of people being stupidly optimistic but rather that people were being cautiously optimistic about economic conditions this year.
Economic and Social Research Institute economist David Duffy said many consumers had concluded that last month was a good time to buy expensive items such as cars and household furniture.
But it was not a case that millions of euro in pent-up demand was about to be unleashed on the economy, he added.
Uncertainty about the economy remained entrenched, while spending power was muted due to hits to incomes and widespread job losses, said Mr Duffy.
The economy is showing signs of recovery from the worst recession in the country's modern history as the Government tries to cut its budget deficit.
The pace of job losses has slowed and a report today showed that construction shrank at the slowest rate in five months in January.
Mr Hughes said that consumers were concluding that the worst was over for the global economy and possibly Ireland.
"Arguably, it might also hint that consumers take the view that Budget 2010 represents the right medicine for the Irish economy," he added.