UF study: Hurricane Katrina shreds Florida consumer confidence

September 26, 2005

GAINESVILLE, Fla. — Florida’s consumer confidence tumbled 11 points to 78 in September, its lowest level in 12 years, reflecting fears about the aftermath of Hurricane Katrina combined with higher fuel costs, University of Florida economists report.

The last time the consumer confidence index dropped to 78 was in October 1993.

The biggest decline this month was in the component measuring perceptions of U.S. business conditions over the next year, which fell 18 points to 57, its lowest level since August 2002.

The other four components also dropped. Perceptions of personal finances now compared to a year ago fell seven points to 79, while perceptions of personal finances one year from now declined seven points to 90. Perceptions of long-term U.S. economic conditions over the next five years dropped 10 points to 70, and perceptions as to whether it is a good time to buy big-ticket consumer items fell 17 points to 92.

“The effect of Hurricane Katrina combined with already rising energy prices have taken their toll on consumers in Florida,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “Prior to Katrina, energy prices had already risen to a level that was making life difficult for some consumers. The short-term effects on energy prices from shutdowns in the Gulf Coast refineries added to that.”

Some of the pressure was relieved by a rise in production by OPEC nations to soften the blow and by the opening of the U.S. oil reserves, McCarty said. But with Hurricane Rita’s impact on another major refinery area, short-term rises in energy costs may persist, he said.

The turn of events does not bode well for the upcoming holiday season, he said.

“It is fairly certain that the effects of high energy prices, higher interest rates and concern over the hurricanes will result in a very weak holiday shopping season,” he said. “Retailers are no doubt bracing themselves for that.”

Lower consumer confidence and higher energy prices are already affecting consumer spending, McCarty said. Chain store sales plunged in September, again mostly due to the high cost of gasoline, and the broader index of retail sales also fell sharply, no longer bolstered by auto sales, which had been brisk in June and July, he said.

Although jobless claims have skyrocketed in recent weeks due to the effects of Katrina, these are likely to come down as businesses in New Orleans, particularly manufacturing jobs, come back on line and unemployed workers are absorbed into other labor markets, he said.

Overall, confidence among those 60 and over fell six points, while it fell 15 points among respondents under age 60, McCarty said. The current personal financial component actually rose two points for seniors and fell 12 points for those under age 60, he said.

“This is largely due to the lower level of confidence for seniors already, but it also reflects how recent events took a disproportionate toll on the lifestyles of younger respondents, due to the rising costs of energy and the potential effect on some aspects of life not as relevant for seniors, such as getting to and from work,” he said.

The component measuring short-term business conditions, which fell the sharpest, is most susceptible to shocks, but it typically regains ground in the month or two following a large dip, McCarty said. “We have to keep in mind, however, that Rita will be another shock and may suppress optimism about business conditions for a while longer,” he said.

The other component to fall drastically was perceptions of buying conditions, McCarty said. “Consumers had been reasonably optimistic about this, but energy prices, and the translation of that into other prices, has finally hit consumers,” he said. “They no longer feel that it is an ideal time to buy.”

The Florida Consumer Attitude survey is collected monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for September was conducted from 436 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.