Housing slump likely culprit in Florida consumer confidence decline

January 30, 2007

GAINESVILLE, Fla. — The housing slump — and not gas prices or the stock market — is likely to blame for the drop in consumer confidence in Florida by one point to 89 in January, University of Florida economists report.

“For more than a year consumer confidence has moved in the direction of gas prices, rising when gas prices fall and falling when gas prices rise,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “This month gas prices declined, but consumer confidence declined as well.”

The stock market had been another key influence, but although the stock market fell in January, it was a small decline that would not normally result in lower confidence, he said.

“Because most of the decline was in perceptions of personal finances, then something else must be responsible,” McCarty said. “This something else is very possibly the difficulties associated with a downturn in housing.”

Perceptions of personal finances now compared to a year ago fell five points to 79, while perceptions of personal finances a year from now fell three points to 93. Expectations about national economic conditions over the next five years fell two points to 83, while expectations about national economic conditions over the next year remained unchanged at 84. Only the component measuring perceptions of whether it is a good time to buy big-ticket items rose, gaining three points to 106.

Pessimism was most pronounced among higher income households, McCarty said. Because the stock market is still relatively healthy and gas prices are lower, it is increasingly likely that owners of higher end homes are the source of the decline, he said.

“The big question is still how the slump in housing will affect consumers and the economy in general,” McCarty said.

Economists are debating the extent to which lower sales, and in some cases price depreciation, will influence the greater economy, he said.

“Some seem to think that housing has bottomed out and that we have successfully achieved a soft landing,” he said. “Others think that the downturn is not yet over and that the effects of housing are not yet fully realized. In my opinion, Florida will experience the effects of housing through 2007.”

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 January 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.