Consumer confidence rises over optimism about the future

December 24, 2008

GAINESVILLE, Fla. — Consumer confidence among Floridians rose five points to 67 in December, reflecting optimism about new presidential leadership in January despite unprecedented pessimism about personal finances, a new University of Florida study finds.

“Consumers are looking forward to a shift in the economy toward something better in 2009,” said Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research. “As with the past month, consumers are confident that the new administration will resolve the economic crisis and that much of the intervention so far will work.”

Four of the five components that make up consumer confidence increased. Perceptions of whether this is a good time to buy big-ticket consumer items rose nine points to 71; perceptions of U.S. economic conditions over the next year rose seven points to 62; perceptions of personal finances a year from now rose six points to 87; and perceptions of U.S. economic conditions over the next five years rose five points to 78.

However, the one component of the index to drop — perceptions of personal finance now compared with a year ago — dropped one point to a new record low of 39, McCarty said.

“Floridians are reporting the worst financial situation for themselves since we started the index in the mid-1980s,” he said.

The numbers were lower for senior citizens and low-income households, McCarty said. For survey respondents earning less than $30,000 a year, perceptions of personal finance now compared with a year ago tumbled from 37 to 24, he said.

The results are disturbing, McCarty said, because that particular index component is most telling when trying to predict consumer spending.

In all likelihood, the recession will last well into 2009 and consumer confidence will decline in the first quarter of 2009 with the lack of immediate relief, he said.

“Job losses have been severe and are unlikely to have peaked,” he said. “Florida has been particularly hard hit compared to other states, shedding more than 200,000 jobs in the past year. With unemployment at 7.3 percent, it will be at least six months before consumer confidence improves considerably.”

About the only bright spot for Floridians is the lower overall cost of gasoline and energy prices, which have shown steep declines over the past several months and seem resistant so far to attempts by the oil-producing countries to prop them up, McCarty said.

While interest rates have come down, lines of credit are still out of reach for many consumers, he said.

Housing prices continue to fall, although some areas of Florida appear to have turned the corner and may actually benefit from the spring real estate season if credit becomes more available, he said.

“Retail sales this holiday season have been abysmal, reflecting a pullback in consumption that is in line with the severity of this prolonged recession,” he said.

While some media outlets are characterizing the pullback in consumption as a sign of a fundamental shift in patterns of consumer behavior, McCarty said it is worth noting that in most recessions, except for the one in 2001, a pullback in consumption is the normal pattern.

“There is no doubt that the decrease in consumption and borrowing are much higher than most recessions, but we should be cautious about declaring this a new era for the American consumer,” 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 December was conducted from 427 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. Based on the University of Michigan method, 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.