Consumer Sentiment Index

Consumer spending is an important element of economic growth. The National Income and Expenditure Accounts (2000) show that in 2000 the value of personal consumption accounted for 49 per cent of Irish GDP. Trends in this component are therefore very important for forecasting and planning. A gap that exists at present in Ireland is a widely used indicator for consumer sentiment. This contrasts with the situation in both Europe and the US. At present the EU Commission publishes a consumer confidence indicator for Europe, and includes details of Ireland as one of the Member States. In the US, measures of consumer confidence by the University of Michigan and the Conference Board receive much attention, both domestically within the US but also internationally. Such indicators have a broader use than solely as an input to model-based forecasts. They provide some barometer of consumer sentiment and thus are an additional piece of information that may be used by those analysing, or interested in, the health of the economy. The KBC Bank Ireland/ESRI index of consumer sentiment aims to fill the existing gap in information on the consumer sector. The new index uses data collected by the ESRI for its monthly Consumer Survey and will be constructed using a methodology based on international best practice. The Economic Sentiment Monitor is a monthly telephone survey which collects information on people’s views of the economic situation, the housing market and the savings environment. The data are used to track changes over time in people’s views and experiences. The survey provides data for the Consumer Sentiment Index, the Savings Index and input into macro-economic modelling. Consumer sentiment has also been shown to perform well as a leading indicator of economic trends. Recently, the Consumer Sentiment Index has been used in the ’Nowcasting’ model which forms an input to the short-term forecasts of the Quarterly Economic Commentary. This research is funded by KBC Bank.