UF Survey: Interest Rate Hikes Fail To Thwart Consumer Confidence

June 27, 2000

GAINESVILLE, Fla. — Despite rising interest rates and higher gas prices, consumers in Florida continue to be optimistic about the economy, according to the latest consumer confidence survey released by University of Florida economists.

The preliminary index for June remained unchanged at 106, the same level as for April and May, and only four points below the record high of 110 set in February, said Chris McCarty, survey director for UF’s Bureau of Economic and Business Research.

“So far consumers are relatively unfazed by rising gas prices and higher rates on consumer loans,” McCarty said. “While the Federal Reserve’s series of interest rate increases have had a dampening effect on the stock market, most consumers are still optimistic as measured by the consumer confidence index.”

“Working Floridians, with secure jobs and good hopes for raises, are barely noticing higher gasoline prices and interest rates,” added UF economist Dave Denslow. “And for retirees, the Fed’s interest hikes are good news, not bad, since many expect to roll over their CD’s at higher rates.”

Although retail sales were down .3 percent in May compared with April, they were up 7.4 percent from May 1999, McCarty said.

One of the more telling statistics is the component that measures whether it is a good time to buy big-ticket household items, McCarty said. That index fell only one point in June to 121 from 122 in May.

“If interest rates stay at about the level they are, we do not expect a significant change in the buying behavior of consumers in Florida,” McCarty said. “Sales of existing homes actually rose in May. Assuming the Federal Reserve decides to leave interest rates alone when they meet this week, sales should remain strong over the next several months.”

A loss of two points in both index components that measure perceptions of the respondent’s personal financial situation were offset by similar sized gains in perceptions of the health of the U.S. economy in both the short and the long term.

In terms of specific types of respondents, there were few changes. Pessimism about personal finances grew among those with annual incomes over $30,000. The component measuring perceptions of their financial situation now compared with a year ago fell six points from 117 in May to 111 in June. That particular loss in confidence may be tied to losses on Wall Street in the past month, McCarty said.

The bureau conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for June was calculated from 523 responses. Numbers for prior months are based on about 1,000 responses. The margin of error for the index is 3 percent.

Consumer confidence is designed to help predict buying patterns by measuring consumers’ mood toward buying. Although other economic indicators also are predictors of buying patterns, consumer confidence tends to be available sooner than those indicators.