Housing and credit crisis sink Florida consumer confidence five points

March 25, 2008

GAINESVILLE, Fla. — Florida’s consumer confidence fell five points to 68 in March, reflecting growing pessimism about the national economy in the midst of the housing and credit crisis, a new University of Florida study reports.

The overall index is two points below its January level, which then marked its worst record in 16 years, said Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research. In February, it rose three points to 73 before dropping in March.

“Consumer confidence is now the lowest it has been since December of 1991, when it hit a record low of 64,” he said.

Four of the five components that make up the index fell this month. The largest decrease was in perceptions about national economic conditions over the next year, which fell 12 points to 53, followed by perceptions of national economic conditions over the next five years, which fell nine points to 74. Perceptions of whether it is a good time to buy big-ticket household items fell four points to 65, and perceptions of personal finances now compared with a year ago fell one point to 64. The only component to rise was perceptions of personal finances one year from now, which rose two points to 86.

“Given these levels and the retail sales data from the U.S. Census Bureau, it is clear that consumers are not in a position to revive an economy that is almost certainly in a recession,” he said.

Home sales and prices, both of which have fallen disproportionately in Florida for the past year, are among the factors affecting Floridians as well as everyone else in the United States, McCarty said.

The housing market woes have led to a shake-up in financial markets as investors across the globe questioned the prudence of U.S. lending practices, McCarty said. They are now withholding the cash needed to fund ongoing lending efforts, he said.

In response, the Federal Reserve Board has engaged in a series of unprecedented interventions to restore confidence in financial markets, including taking on mortgage debt from troubled firms such as Bear Stearns and lowering interest rates sharply, McCarty said. The drop in interest rates has contributed to the falling dollar against other currencies, which makes goods from gasoline to cereal more expensive, he said.

“Our economic problems are unlikely to turn around over the next several months,” McCarty said. “However, some of what needed to happen has already occurred.”

Home prices are falling to reasonable levels and in parts of Florida are now where they would have been without the run-up over the past few years, he said.

“We expect housing prices in many Florida markets to bottom out by July, following another weak home-buying season,” he said. “Although it will be a long time before real estate returns to 2005 prices, it will be a reasonable time for Floridians waiting to buy a house to enter the market.”

And with the passage of the property tax amendment, those Floridians with Save Our Homes equity will be in a good position to move within Florida, he said.

“Many economists expect slow growth to return by the end of the year and solid growth to return by early next year,” he said. “It is useful to keep in mind that there are investors out there with money to lend, an essential ingredient for a growing economy. When they are confident that their investments will grow, they will return.”

It also is clear from the international fallout that the U.S. economy is firmly integrated into the global markets and stands no chance of failing, 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 March was conducted from 399 responses.

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.