Relief at pump spurs hike in Florida consumer confidence this month

October 31, 2006

GAINESVILLE, Fla. — Lower gas prices have given low-income customers a break and fueled a seven-point increase in consumer confidence in October to 90, its highest level in seven months, University of Florida economists report.

“The increases in consumer confidence were particularly high among lower-income households, emphasizing the role that lower gas prices continue to have on consumer confidence,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “Gas prices across the country are nearly 40 cents lower than this time a year ago, and in the lower Atlantic states they are 53 cents lower. This, coupled with the absence of hurricanes here in Florida and solid employment numbers, provides some much needed relief for low income consumers.”

The effect on consumers shows up in retail sales data for September, which indicate a strong increase once gas prices declined, he said.

Higher income households, though not experiencing as much of an increase in optimism, were no doubt encouraged by the gains in the stock market, McCarty said. Investors, also heartened by falling oil prices and steady job growth, have been bullish for the past two months, pushing the stock market to record highs, he said.

“Despite the large increases in consumer confidence, there is reason to believe they may be short-lived,” McCarty said.

Debt burdens on households continue to remain at record levels, and while employment has been steady, wage growth has been stagnant, he said.

“The larger threat to the economy is the effect of the decline in housing, which is now apparent nationally, and is particularly severe in Florida where many coastal properties were inflated,” he said. “Overall housing sales and prices are expected to decline more before they rise again.”

Single-family home sales fell in Florida during September by 34 percent, with a 1 percent drop in the median price, McCarty said. The decline was particularly severe for coastal communities such as Sarasota, where the median price fell by 16 percent, compared with areas such as Gainesville, which experienced a 15 percent price increase, he said.

“Frankly, I am puzzled that the decline in housing has not significantly affected consumers here in Florida yet,” McCarty said. “I expect that consumer confidence will decline in the coming months as the effects of housing are fully realized in terms of consumer debt and home equity extraction, construction employment and spending associated with home sales.”

There has been a lot of debate among economists about the potential impact of housing, McCarty said.

“Some think that the worst is over and that strong employment and lower energy prices will balance out the ill effects of resetting adjustable rate mortgages and declines in home equity,” he said. “Others think that we have not seen the bottom of this decline and that over the next several months consumers will feel the effects of the decline in a number of ways, and that this will ultimately hurt the economy, perhaps pushing it into recession.”

The rise in confidence was broad-based, with increases in all five of the components. Registering the biggest gain was perceptions of U.S. economic conditions over the next year, which jumped 11 points to 84. Perceptions of U.S. economic conditions over the next five years rose eight points to 85. Two components increased by seven points: perceptions of personal finances now compared with a year ago, to 83; and perceptions of personal finances a year from now, to 96. Perceptions as to whether it is a good time to buy big-ticket items rose three points to 103.

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 October was conducted from 438 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.