Gas prices, debt sink Florida consumer confidence to near all-time low

May 27, 2008

GAINESVILLE, Fla. — Tax stimulus checks failed to blunt the damaging effects of record gas prices and rising debt on Florida’s consumer confidence in May, causing it to drop one point to 65 and hit a new 16-year record low, according to the latest statistics from the University of Florida.

Until now, last month’s reading had been consumer confidence’s lowest level since December 1991, when the index fell to 64 and reached its all-time low, said Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research.

“It does not appear that the stimulus checks have done much for confidence so far,” McCarty said. “Last month I suggested that the checks might result in a temporary increase to consumer confidence in Florida. That would likely have showed up in one of the questions about personal finances. But those index components were essentially flat. Some of this is probably due to record gas prices and increasing debt obligations.”

The component measuring perceptions of personal finances now compared with a year ago remained at 59, its all-time low. Three of the index’s five other components dropped; perceptions of whether it is a good time to buy big-ticket items fell three points to 64; expectations about personal finances a year from now slipped one point to 78; and expectations about U.S. economic conditions over the next five years dipped one point to 71. The remaining component, perceptions of U.S. economic conditions over the next year inched up one point to 53.

One of the reasons for the dramatic rise in gas prices is the increase in demand that accompanies the approaching summer vacation season, McCarty said. But the lowering of interest rates by the Federal Reserve Board is also a factor because it weakens the dollar against other currencies, making oil, which is priced in dollars, more expensive for Americans, he said.

In addition, speculators who have been expecting interest rate cuts by the Fed drive up the price of oil by entering into contracts anticipating higher prices in the future, McCarty said. But because the Federal Reserve has indicated it is finished with cutting interest rates for now, that part of the equation may reverse, he said.

Consumer confidence in May actually rose for lower-income households, as well as the elderly, but it is unclear why, McCarty said. While it is possible this may be the result of some people who filed their taxes earlier receiving stimulus checks, it could also relate to them having made adjustments for rising gas prices based on earlier increases or to the effect of falling housing prices on middle- and upper-income households, he said.

“Florida consumers are certainly in a tight spot,” McCarty said. “Housing prices are still declining, lowering the equity consumers have in their homes. Worse is the confusion about when price declines will stop.”

Although most economists foresee price declines extending into 2009, McCarty said he expects many Florida housing markets to bottom out by July based on price patterns so far. Once these declines stop, consumers and lenders will know what homes are worth, as will potential buyers, he said.

“This will dramatically improve circumstances in Florida, which is more dependent than other states on housing activity,” he said. “However, significant increases in housing prices are years away.”

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 May was conducted from 429 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.