Trump One Year on: Economic sentiment bouncing back

Bank of Ireland Economic Pulse well up on lowest level recorded this time last year

• BoI Economic pulse 4.6 higher than this time one year ago
• Two in five firms to increase investment spending in 2018
• However cost of renting a concern for 42% of households

The Bank of Ireland Economic Pulse came in at 90.5 in November 2017. The index, which combines the results of the Consumer and Business Pulses, was unchanged on the month. Households were less upbeat about economic prospects this month, while the business picture was little changed.

The latest reading is 4.6 higher than a year ago when the outcome of the US Presidential election, coming soon after the Brexit vote and amid some industrial tension at home, unsettled households and firms. However with little actual policy implementation to date, the hit to economic sentiment from Trump’s agenda looks to be waning.

Discussing the Economic Pulse, Dr. Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said: “This time last year the outcome of the US Presidential election caught many by surprise. It followed closely on the heels of the UK’s decision to leave the EU and also came in the midst of some industrial tension at home. All of this served to unsettle households and firms, with the Economic Pulse reading in November 2016 the lowest in the series’ history. But with the Trump administration making little headway in implementing its agenda over the past year, the hit to sentiment seems to be waning, whereas Brexit-related uncertainty is continuing to take a toll.

The protectionist nature of Trump’s policy agenda is a concern for Ireland because of the open, export-orientation of our economy and the importance of foreign direct investment by US multinationals. Reflecting this, Economic Pulse research conducted earlier in the year with Irish firms for whom prospective US policy changes are a live issue found that roughly one in four in the industry and services sectors had pressed the pause button on their investment plans for this year.

This month further research was conducted looking ahead to next year. The results suggest that firms are starting to factor in Trump’s bark being worse than his bite, with just 16% reporting that they are putting their plans for next year on hold. This will be a space worth watching though as the current US tax reform proposals work their way through Congress.”

Consumer Pulse

At 95.9 in November 2017, the Consumer Pulse was down 1.4 on last month’s reading but up 7.6 on this time last year. Households were less upbeat about the economic outlook this month, though their assessment of their own financial situation was little changed. With the festive season approaching, one in five indicated that they plan on spending more on Christmas presents this year compared with last year, while 57% intend to spend about the same. Similarly, 28% of retailers expect their Christmas turnover to be up on last year, with around half expecting it to be much the same.

Dr. Loretta O’Sullivan commented; “With a host of Black Friday events over the weekend and Cyber Monday kicking off today, it’s full steam ahead for festive shopping. Consumers and retailers look to be on the same page in this respect, with one in five households planning on spending more on presents this year compared with last Christmas, while one in four retailers expect their Christmas turnover to be up on last year. Retailers in Connacht/Ulster are a little more downbeat than elsewhere though, with 20% expecting to turn over less this year, double the figure for Dublin. Given their proximity to the border, the weak pound is likely a factor, with some consumers set to travel to the North to do their shopping.”

Business Pulse

The Business Pulse was broadly unchanged in November 2017, coming in at 89.1. Sentiment among construction firms rose sharply this month, with the Industry and Services Pulses also ticking up. While the Retail Pulse lost some ground, this comes on the back of a strong performance last month and broadly positive expectations for the Christmas trading period. The November data also show that two in five businesses expect to spend more on investment in 2018 compared with this year. A range of factors were mentioned as having an impact on firms’ plans, with demand from customers, financial and technical conditions generally seen as supportive. The ‘wait and see’ approach to investment decisions that many Irish firms adopted this year in response to Brexit-related uncertainty seems set to continue into 2018 though, with around half of those affected by the UK’s decision to leave the EU putting their plans on hold.

Housing Pulse

The Housing Pulse stood at 117.4 in November, down 2.5 on last month but up 9.2 on a year ago, with over one third (35%) worried about rising house prices and cost of renting a concern for 42%. The results also show that the majority of survey respondents expect house prices and rents to increase over the coming 12 months, with Dublin ahead on both fronts. With CSO data also indicating that annual house price growth is back in double digit territory and that rents are well above their previous peak, it is not surprising to see rising house prices and the cost of renting featuring on the list of household concerns, and high up on it for younger cohorts. Regional Pulse

The Bank of Ireland Regional Pulses combines the views of consumers and businesses in the different parts of the country. The 3 month moving averages show that sentiment was up in Dublin in November 2017, broadly unchanged in Munster and down in the Rest of Leinster. Softer sentiment was particularly apparent in Connacht/Ulster, where households were less upbeat about the economy this month.

Meanwhile firms’ expectations for near-term business prospects and hiring intentions were little changed in all regions. With the festive season getting underway, retailers in Connacht/Ulster were a little more downbeat than elsewhere, with 20% expecting their Christmas turnover to be down on last year, double the figure for Dublin.

Three month moving averages:

• Dublin Pulse = 94.7 + 0.6 points on the previous reading;
• Rest of Leinster = 88.4 – 0.8 points on the previous reading;
• Munster = 91.7 + 0.1 points on the previous reading;
• Connacht/Ulster = 81.1 – 3.1 points on the previous reading;