UF study: Healthy stock returns beef up Florida consumer confidence

March 28, 2006

GAINESVILLE, Fla. — Stock market gains helped to boost consumer confidence four points in March to 91, regaining half of the eight-point decline from the previous month, University of Florida economists.

The stock market rose steadily through March, buoying optimism among upper-income Floridians, who are most likely to be invested either directly or through retirement accounts, said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research.

The rise in confidence was broad-based, with increases in four of the five components of the index. The largest increase was in perceptions of whether it is a good time to buy big-ticket items, such as cars and major appliances, which jumped six points to 108. Perceptions of personal finances now compared with a year ago climbed five points to 88. Increasing by three points were perceptions of U.S. economic conditions over the next year, to 80, and perceptions of economic conditions over the next five years, to 82. Perceptions of future personal finances remained unchanged at 95.

“Consumers in Florida continue to surprise me,” McCarty said. “I had expected consumer confidence to remain the same or decline this month, but consumers felt differently.”

Major variations in consumer confidence emerged by income level. Respondents earning annual incomes of less than $30,000 reported lower optimism about their current finances, but higher optimism about their finances a year from now. Respondents with annual incomes of more than $30,000 were increasingly optimistic about their current finances, presumably because of recent stock market gains, but pessimistic about future finances.

“Although my predictions for this month were off, I still expect a decline in confidence as a couple of factors come to bear,” McCarty said. “Gas prices have risen once again, and as always the case, they will rise during the summer months due to increased domestic demand. This will put a drag on all consumers as they react to those price changes.”

The effects of gas prices on consumer confidence seem to lag by about a month, McCarty said. Although the price of gasoline had fallen in Florida through much of February, it began to creep up in March, he said.

In addition to rising gas prices, the housing market has started to decline, adding to the state’s economic woes, he said.

“Mortgage and refinance applications were both down for the week ending March 17th and are likely to decline even further,” he said. “The effects of the decline, which is expected to unfold over the rest of 2006 and early 2007, will ultimately have a negative effect on consumer confidence, and as a result, consumer spending.”

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 March was conducted from 442 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 the year. The value of the index is in comparing changes over time rather than looking at an isolated month.