Sharp drop in consumer sentiment in October, while business sentiment holds up

  • Brexit concerns weigh on households, with consumer confidence significantly down
  • Business sentiment little changed
  • Industry rapidly using up available resources suggesting economy is reaching full capacity

Tuesday 30th October 2018: The latest Bank of Ireland Economic Pulse reading for October 2018 is flat on last month at 92.6, although it is 2.1 higher than this time last year. The Irish survey, which provides data for the EU Commission, combines the results of the Consumer and Business Pulses. This month it presented a mixed picture, with a sharp drop in the Consumer Pulse, while the Business Pulse rose slightly.

The October survey found that growth ambitions remain positive amongst Irish businesses, with almost two thirds of firms looking to scale up their business in the next one to three years. There were more near term concerns however, across the retail and construction sectors in particular. Both sectors cited uncertainty as a factor which is limiting their activity. This is also evident in consumer sentiment, with a significant drop of 5.8 in the Consumer Pulse as Brexit concerns weigh on households.

Commenting on Bank of Ireland’s October Economic Pulse research, Dr Loretta O’Sullivan, Group Chief Economist for Bank of Ireland said:

“This month’s Economic Pulse took place during Budget 2019, but as the income tax reductions and social welfare increases were fairly modest, households’ reaction was muted though there may be more of a bounce when the measures take effect. It was really Brexit that hit home for households this month and with a deal proving elusive and political rhetoric high, consumer confidence was significantly down on last month.

“While business sentiment was a touch firmer this month, it remains off the two year high it registered mid-way through 2018. The mood was mixed across the sectors with the Industry and Services Pulses rising but the Retail and Construction Pulses falling.”

Business Pulse

  • Business Pulse up slightly in October

  • Sentiment mixed across the sectors
  • Pay rises on the cards

The Business Pulse was fairly steady, up 1.3 on September’s reading to 93.1 in October 2018. The Services Pulse led the way this month (an improvement in medium/larger firms’ order books helped) and the Industry Pulse was also a little higher.

The Construction and Retail Pulses were down on the month, however, with a large number of retailers and builders indicating that uncertainty is limiting their activity. The October survey finds that growth ambitions remain positive across the board, though, with almost two thirds of firms looking to expand their business in the next one to three years. It also shows that 44% are planning on increasing employees’ basic pay over the coming 12 months, by 3.8% on average.

The Business Pulse also includes a question on capacity utilisation, data which hasn’t been available in Ireland for a number of years but which the Economic Pulse has begun collecting. This shows that industrial firms are using around 76% of the resources available to them – in line with the historical average. Taken together with other indicators like the low unemployment rate this suggests the economy is reaching full capacity. Typically it is at this point that wage and price pressures build, pointing to the need for careful management of the economy and the public finances to mitigate the risk of overheating.

Consumer Pulse

  • Consumer Pulse down in October
  • Households more subdued about the economy
  • 34% think it is a good time to buy big ticket items – 38% last month

There was a sharp drop in the Consumer Pulse in October, coming in at 90.7. This is down 5.8 from last month and is the lowest posting in 20 months. As Budget 2019 announced only slight reductions in income tax and modest social welfare increases, households’ assessment of their own finances was little changed, though there may be more of a reaction when the measures take effect. With time running out and no breakthrough in the Brexit negotiations, households were more downbeat about the general economic situation and the outlook for unemployment this month.

Housing Pulse

  • Housing Pulse loses ground in October
  • Rent expectations also ease
  • 72% think it is cheaper to buy than rent in their area

The Housing Pulse fell for a fifth month running in October 2018, to 101.5. While two in three households think that prices will rise in the next 12 months, the share expecting increases in excess of 5% has been trending down over the past year, weighing on the headline index. This cooling in expectations is mirrored in developments on the ground, with data from the CSO showing a softening in house price inflation in recent months as supply ticks up (albeit by less than is needed) and the market adjusts to the Central Bank’s mortgage rules. On the home improvements front, three in ten are likely to spend substantially on renovations over the coming year.

Regional Pulse

Three month moving averages:

  • Dublin Pulse = 97.3 -0.9 points on the previous reading;
  • Rest of Leinster = 92.6 +1.8 points on the previous reading;
  • Munster 89.7 -1.5 points on the previous reading;
  • Connacht/Ulster = 86.0 -1.2 points on the previous reading.
  • The Bank of Ireland Regional Pulses combine the views of households and firms around the country. The results for October 2018 (3 month moving average basis) show that that sentiment was down on the month in three of the four regions.

    Household nerves in Connacht/Ulster appear to be especially on edge given the stalemate on a solution to the border backstop. This is also reflected in the business mood in this part of the country.

    About the Bank of Ireland Economic Pulse:

    The Bank of Ireland Economic Pulse survey is conducted in conjunction with the European Commission, with the data feeding into the EU Commission’s Joint Harmonised EU Programme of Business and Consumer Surveys, a Europe-wide sentiment study running since the 1960s. The Economic Pulse surveys are conducted by Ipsos MRBI on behalf of Bank of Ireland with 1,000 households and approximately 2,000 businesses on a range of topics including the economy, their financial situation, spending plans, house price expectations and business activity.