UF Study: Fears About U.S. Economy Sinks Florida Consumer Confidence

April 26, 2005

GAINESVILLE, Fla. — Florida’s consumer confidence fell two points to 90 in April, its lowest level in 20 months, reflecting concerns about higher gas prices and interest rates, and a declining stock market, University of Florida economists report.

The biggest drop came in the component measuring expectations about the U.S. economy over the next year, which fell seven points to 76. This component had already dropped 10 points in March. Other declines were recorded in expectations about the U.S. economy over the next five years, which fell five points to 79, and perceptions of whether it is a good time to buy big-ticket items, which fell three points to 111.

Those declines were balanced by modest increases in the two components that measure perceptions of personal finances. Expectations of personal finances a year from now rose four points, from 93 to 97, and perceptions about personal finances now compared with a year ago increased two points, from 88 to 90.

“There are some signs that the economy may be cooling off a bit,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research, where the research was conducted. “While job growth had been fairly positive recently, particularly in Florida, there are signs that this may be slowing.”

Energy prices and interest rates are much higher than they were last year, with little reason to believe either will come down in the near future, McCarty said. For the most part the stock market has been a disappointment, with the Dow Jones Industrial Average threatening for much of the month to drop below 10,000, he said.

“Despite positive reports about personal finances, Florida’s consumers are increasingly pessimistic about the economy in both the short and long term,” he said.

The decline in perceptions of the economy was more pronounced among respondents 60 and older, perhaps reflecting concerns over Social Security reform, although that is no longer front-page news, McCarty said. And despite overall increases in perceptions of personal finances, there was a slight decline among households making more than $30,000 a year, he said.

McCarty said he would expect Florida’s consumer confidence to remain in the low 90s or upper 80s for a few months, barring some unforeseen event that consumers would perceive as extremely pessimistic or optimistic.

For one thing, gas prices typically rise during the summer months when demand increases as people take vacations, McCarty said. He noted that recent polling data suggest households nationwide are making adjustments to spending and traveling to accommodate high gas prices.

“This may eventually impact Florida as Americans put off vacations to the Sunshine State,” he said. “On the other hand, with the weak dollar, it is cheap for foreign travelers from Europe, Japan and elsewhere to travel here. This may balance some of the lost tourist revenue from interstate travel.”

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 April was conducted from 405 responses. The error rate is plus or minus 5 percent.

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

The index is benchmarked to 1966, so 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.