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Consumer sentiment slumps in May

Monday, June 09 12:00:18

Irish consumer sentiment slumped in May with people more worried about their own personal finances, the latest KBC Bank Ireland/ESRI Consumer Sentiment Index shows.

It fell from 87.2 in April to 79.4 last month, the lowest reading since November 2013.

The scale of the change in sentiment if not the direction came as a significant surprise, according to Austin Hughes, Chief Economist, KBC Bank Ireland.

"In what is still an uneven turn in the Irish economy, it is not realistic to expect the mood of consumers to improve continuously month after month. Instead, reasonably frequent corrections are to be expected in circumstances where household finances remain under a fair degree of pressure. As there had only been one decline in the sentiment index in the previous six months, a weaker reading in May shouldn't be seen as a complete shock," he said.

He added that what is remarkable about the consumer sentiment survey for May is the extent of the decline from April.

"The 7.8 drop in the index is relatively large although not unprecedented - it is the 14th largest monthly fall in the eighteen year history of the index. As such, it would appear to suggest a clear deterioration in Irish consumer thinking of late. In the context of widely held expectations of a marked improvement in the fortunes of the domestic Irish economy through 2014 this would represent something of a setback," Mr Hughes added.

"In view of the scale of the change in the sentiment index in May, we re-checked the preliminary data but this didn't impact on the initial results. In the paragraphs below, we consider a number of possible explanations for the poor May reading before we analyse the detailed results. We begin by looking at some technical considerations before examining whether any particular developments during the survey period might be consistent with the sharply negative outturn."

The size of the drop in the May sentiment reading may be signalling a substantive change in the mood of Irish consumers but it could also reflect a tendency for data sets to throw up extreme outliers periodically that are largely statistical 'noise' rather than indicators of dramatically changed circumstances, KBC said.

"One might expect monthly series to throw up extreme values of this sort every couple of years (ie monthly changes of around two standard deviations might be expected in around 5pc of observations)."