Consumer sentiment edged higher in May, making back some lost ground in earlier months of the year. That is according to KBC Bank Ireland and the ESRI which monitors consumer sentiment from month to month.
Austin Hughes, chief economist with KBC Bank Ireland, said things were improving but the improvement was "modest rather than marvellous". "Consumers are a little more wary about the outlook for the general economy. They're hearing about uncertainties relating to trade wars and Brexit. "They're not seeing a dramatic improvement in their household finances. They're hearing a lot about an economy that's overheating. They're sensing things might be better but they're not great. Any pickup is modest," the economist said.
Compared to the boom years, Austin Hughes said the tone was entirely different. "In the early part of the boom, sentiment was 140. Now, the figure is 107. It's a case that things are getting better, but it's not a dramatic improvement. The index is consistent with the other evidence. April retail sales - excluding car sales - were up 1.8% in value terms. That's a consumer who's spending but not a lot more".
Mr Hughes also noted that average weekly earnings in the private sector were up 1.8% in the first three months. "It's not the boom time and when consumers hear about overheating, they sense that it's happening elsewhere and they're not at the party," he said.
Asked about where over-heating might be emerging in the economy, Austin Hughes said there was pressure in the property market, but there was a question mark over whether it could be classified as over-heating.
"We're recovering from a situation where we built virtually no houses to where we were not building enough and we're still not building enough. It's about resource allocation. We have to build more houses and we have to be careful about expectations. The risk is when there's talk of over-heating, consumers say they want some of that and you get aggressive wage demands," Mr Hughes said.
He said the danger with talk of trade wars and tariffs is that it could create uncertainty. "Trade wars could hit economic activity and raise prices. The risk is that it could cause consumers to pull back on their spending," he concluded.
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