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Consumers optimistic but still cautious with spending

Irish consumers are planning to spend more but they remain cautious.

The move to loosen household purse-strings comes as consumer sentiment rose in May despite uncertainty about the general economic outlook, including the evolving political crisis in Italy.

The KBC Bank Ireland/ESRI consumer sentiment index increased to 106.7 in May from 104 in April, reversing about two-thirds of a drop that had been seen between March and April.

Economists said the May reading for the survey suggests the mood of consumers is one of guarded optimism.

Jobs and wage data this year have been positive, and figures from the Central Bank last week showed Irish household savings at a record high of €101bn, indicating at least some households have the capacity to crank up spending.

However, consumers are mindful of risks to the global economy.

Despite the rise, the May index reading is lower than was seen in January or March, indicating that the recovery in household confidence is patchy.

Economist with KBC Bank Austin Hughes said there is a sense of consumers in this country being buffeted by cross currents rather than riding the crest of a wave of good economic news.

Most of the five elements of the sentiment index were up last month.

However, the two elements that were down were the expectations for the economy and prospects for household finances over the next year.

The strongest rise in the elements that make up the index was the one related to spending plans by households.

“The pull-back in expectations both for the Irish economy as a whole as well as consumers’ own household finances also sits uneasily with a ‘bubbling’ economy at present but this reading is entirely consistent with the evidence emerging from other indicators in the past couple of weeks,” Mr Hughes said.

He said the measured tone of Irish consumer confidence mirrors the picture of the economy suggested by relatively modest growth in retail sales.

The economist said this is at odds with the recent warnings from the Paris-based think-tank, the Organisation for Economic Co-operation and Development, that the economy is experiencing rising “wage pressures”.

Mr Hughes said the tone of the latest consumer confidence reading is entirely consistent with recent indicators showing modest increases in earning and spending that point towards an uneven recovery across households and businesses.

Economic momentum worldwide has been cooling in recent months.

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