Survey Predicts Weak Holiday Sales Despite Consumer Confidence Rise

November 27, 2001

GAINESVILLE, Fla. — Consumer confidence made a modest gain in November, but with overall confidence down for the year, lackluster holiday sales are likely, University of Florida economists said Tuesday.

The preliminary index rose one point to 87 in November, said Chris McCarty, director of UF’s survey research center at the Bureau of Economic and Business Research.

“Our prediction is that this will be a weak holiday season for retailers, with sales up about 2 percent over last year,” McCarty said.

The component measuring whether it is a good time to buy major household items rose nine points to 108, the same level it was prior to the September terrorist attacks. But the one measuring short-term business conditions in the United States, although up four points, is still far below the pre-attack level, he said.

“The results of this month’s survey are mixed,” McCarty said. “Consumers clearly recognize that with interest rates at a 40-year low and with retailers slashing prices to maintain their bottom line during the holidays, it is a great time to spend money if you have it.”

On the down side, both index components measuring perceptions of personal finances fell in November and are at their lowest levels since the mid-1990s, he said.

“Consumers are telling us that the economic downturn has hit them in their wallet and even though they would like to spend, they can’t afford it right now,” he said.

Most retailers have adjusted by drastically lowering prices, sacrificing profits to move inventory and maintain market share, McCarty said. As in past holiday seasons, discounters such as Wal-Mart and Target are doing much better than specialty stores and more upscale department stores, he said.

Retail sales in October skyrocketed, but the increase was due almost entirely to automobile sales, which were stimulated by hefty rebates and very low financing by the Big Three auto manufacturers, he said.

Despite the slight rise in consumer confidence among Floridians in November, overall confidence is down 17 points from last year, said UF economist Dave Denslow.

“The good news is that the component down least in the past year is whether now is a good time for major purchases,” Denslow said. “People are being encouraged to spend by low interest rates, by falling gasoline prices and by bargain prices of other goods.”

On a positive note, the component measuring perceptions of short-term business conditions, up four points, is the one that most accurately reflects consumers’ feelings about the terrorist attacks and the war in Afghanistan, McCarty said.

“The rise in this component suggests that consumers are beginning to see the light at the end of the tunnel and are recovering from the effect of these events,” he said. “This may signal a willingness on the part of consumers to resume spending patterns by the second quarter of next year when the economy begins to recover from the downturn.”

The center conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for November was calculated from 362 responses. Numbers for prior months are based on about 1,000 responses. The margin of error for the index is 5.3 percent.

Consumer confidence is designed to help predict buying patterns by measuring consumers’ mood about personal finance and the economy. Although other economic indicators also predict buying patterns, consumer confidence tends to be available sooner than those indicators.

The index is benchmarked to 1966, so that a value of 100 represents the same level of confidence for that year. The value of the index is in comparing changes over time rather than looking at an isolated month.