Consumer confidence rises in June for no apparent explainable reason

June 27, 2006

GAINESVILLE, Fla. — Consumer confidence among Floridians in June rose four points to 90, reflecting optimism about the long-term future of the U.S. economy, but University of Florida economists say they are unsure exactly why.

“The rise in confidence comes as a surprise given what is happening in the economy that should be affecting consumers,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “Gas prices declined a bit in June, but so did the stock market. The Federal Reserve has induced rises in interest rates on credit cards and home loans. It’s unclear why consumers are so optimistic about the future.”

The rise in confidence was primarily in the questions reflecting expectations about the months and years to come.

Perceptions of U.S. economic conditions over the next five years rose 10 points to 85, while perceptions of U.S. economic conditions over the next year rose five points to 78. Expectations about personal finances a year from now rose four points to 96. Perceptions of personal finances now compared with a year ago was flat, at 88, as were perceptions of whether it is a good time to buy big-ticket items, which remained at 100.

Unlike other states, Florida has fared better in the economic expansion since the 2001 recession, particularly in the area of job creation and employment, McCarty said.

Consumer confidence nationally as measured by the University of Michigan in its mid-month release also shows a rise in confidence, but it follows a large drop from April to May, McCarty said. One reason for the rise nationally is that consumers may have over-reacted to negative economic news in the previous month and are now more optimistic, he said.

“Moving forward, we still expect high energy prices and the decline in the real estate market to have a negative effect on consumers in the coming months,” he said.

In particular, the real estate market will become more of a factor because those whotook out low-interest adjustable rate mortgages three years ago will suddenly be affected when the loan matures and the mortgage payment is pegged to current interest rates, which have since gone up, McCarty said.

“It is unclear how many Florida households will be impacted by this phenomenon, but we should keep in mind that Florida has one of the highest rates of using these types of loans over the past several years, given the high appreciation of housing prices,” he said.

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 June was conducted from 417 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.