Thursday, July 11, 2013

11/7/2013: Consumer Confidence Boost in June

ESRI/KBC Consumer Confidence indicator for Ireland posted a surprising jump in June compared to May, rising to 70.6 from 61.2. The index is now at the highest reading since October 2007. There are many caveats to this increase, as contained in the ESRI/KBC release, available here:
http://www.esri.ie/irish_economy/consumer_sentiment/latest_consumer_sentiment/PRJune_13.pdf

The chart below plots June reading for the indicator (vertical red line), as well as the latest (May 2013) pairings of Consumer Confidence against Volume and Value indices of retail sales (labeled as 'Current').

The chart below puts the time series for retail sales (through May) and Consumer Confidence (thorugh June):

The core points to add to the release (linked above) is that

  1. Consumer Confidence has little direct connection to core (ex-motors) retail sales indices, with low R-squares for both relationships.
  2. Consumer Confidence shows more volatility than the volume of retail sales across all time periods. Pre-January 2008, STDEV for Value of Retail Sales is at 7.0 and for Volume at 6.6, with Consumer Confidence at 14.8. Since January 2008, Consumer Confidence STDEV is at 7.9, against 4.5 for Volume and 7.4 for Value of core retail sales. Since January 2010, STDEV to Consumer Confidence is at 6.3, against that for Value of retail sales at 1.3 and Volume of 1.8.
  3. Last chart above clearly shows divergent trends in retail sales and confidence series from July 2008 through June 2010 and from March 2011 through today.

This is not to criticise the Consumer Confidence Indicator quality, but to caution against any short-term calls to be based on indicator alone. To see serious change in the underlying consumer propensity to spend and to see any serious change in the underlying inputs into the national accounts, we have to wait for a confirmation over time of the stronger trend in all three series.
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