Rising gas prices help sink Florida consumer confidence

May 25, 2004

GAINESVILLE, Fla. — Consumer confidence among Floridians fell sharply in May, prompted by escalating gas prices, a falling stock market and growing pessimism over the war in Iraq, University of Florida economists report.

The overall preliminary index dropped four points to 92, and four of the survey’s five indexes also fell.

The biggest decline was in the component measuring perception about whether it is a good time to buy big-ticket items, which dropped eight points to 107. Two components each fell five points, those assessing perception of personal finances now compared with a year ago, to 81, and perception of the U.S. economy over the next year, to 85. Perceptions of expected personal finances a year from now dipped two points to 100. The only component to rise – expectations of the U.S. economy over the next five years – rose three points to 90.

“The (positive) effect of the tax cuts have now passed,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “Those consumers who received rebates have now factored them in. And recent drops in the stock market and soaring gas prices are certainly contributing to growing pessimism over personal finances.”

The five-point drop in the personal finance component is particularly sobering because it is linked so closely with consumer spending patterns, he said.

“The fall in perceptions of U.S. business conditions over the next year is largely affected by the recent troubles in Iraq and perceptions that the war may not be going as well as initially planned,” he said.

Other economic indicators show that although the economy is recovering, the turnaround is happening much more slowly than during the recession of the early 1990s, McCarty said. Jobless claims are still below 350,000, the benchmark for which net job creation

begins to rise rapidly, but the number has been edging up in recent weeks, he said.

How consumers react when the Federal Reserve finally acts to raise interest rates will be a key factor in the long-term character of the recovery, he said.

“Given the recent declines in consumer confidence, we would expect an eventual slowing in retail sales,” he said.

Retail sales for April were down, particularly auto sales, as people felt less confident about making large purchases, said Scott Richards, the survey research center’s project coordinator. Total retail sales fell by one half of one percent in April, he said.

“If the war in Iraq continues to be problematic, this will definitely affect the upcoming election this November,” McCarty said. “Despite the recent rise in net jobs, pessimism about personal finances will be a drag on consumer optimism.”

The research center conducts the Florida Consumer Attitude survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for May was conducted from 412 responses. The error rate is plus or minus 4 percent.

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

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.