Consumer sentiment weakened a little last month, but the decrease was not unexpected after the exceptional rise seen in October.
The KBC Bank Ireland/ESRI consumer sentiment index fell to 60.1 in November from the 16 month high of 63.7 seen the previous month. This compares to a reading of 48.4 in November 2010 and an average reading of 55.4 for the last 12 months.
KBC says that by combining the results for the past two months, some improvement in the mood of Irish consumers is becoming evident. But it added that Irish consumers remain fairly gloomy as they are still ''cash strapped and cautious''.
The ESRI's Cormac O'Sullivan said that the financial crisis is weighing on consumer sentiment, with the fall this month being driven by households' expectations of future conditions.
''These results suggest Irish consumers may tolerate a Budget package that imposes further pain provided it also points in the direction of an eventual recovery,'' commented KCB Bank Ireland's chief economist Austin Hughes.
Mr Hughes said that while the improvement in consumer sentiment of late may be surprising in the light of the sharply worsening conditions in the euro zone, it may be that consumers no longer see Irish conditions as ''uniquely awful''.
''The positive recent assessment of Ireland by the Troika and, more importantly, lower ECB rates may suggest a belief that a problem shared is a problem halved,'' he added. He said that Irish consumers may also feel that broader difficulties across the euro zone are likely to see a more forceful international response.
Mr Hughes also said the ECB's interest rate cut last month and the increasing view that more rate cuts will follow - perhaps as early as next week - would be a silver lining for Irish homeowners to what are ''very dark economic clouds across Europe''.
''It now seems likely that the ECB will play the role of Santa Clause for many hard pressed Irish households,'' he added.
The economist noted that the weakest element of the consumer sentiment index was the general economic outlook. While there was a surprising marginal improvement in consumers' views of jobs prospects for the year ahead, consumers are still predicting a very difficult jobs market for 2012.
Survey responses in relation to household finances were mixed but pointed to some modest improvement in the past couple of months that may be related to lower ECB rates as well as the view that income taxes and the main social welfare payments are not going to change in next week's Budget.
The November index also shows some weakening of the buying climate. While there has been some improvement in overall consumer sentiment during the last few months, there is very little evident to suggest it will prompt a big rise in spending.
While the looming VAT rate change may bring forward some spending to the end of this year from 2012, the index suggests that Irish consumers remain ''cash strapped and cautious''.
''In these circumstances, a Budget that is seen as fair and that moves the Irish economy a bit further towards a turnaround could further ease pessimism among consumers and limit the pullback in spending that remains likely in 2012,'' Mr Hughes stated.
