Florida's consumer confidence drops one point as sequestration looms

February 26, 2013

View Florida Consumer Confidence Index Graph

GAINESVILLE, Fla. — The delayed effect of the expiring payroll tax cut prompted Florida’s consumer confidence to drop one point in February to 74, according to a monthly University of Florida survey.

However, consumer outlook could grow even gloomier if massive federal spending cuts required by a process known as sequestration takes place in March, said Chris McCarty, director of UF’s Survey Research Center in the Bureau of Economic and Business Research.

Two years ago, the White House and Congress tried to stimulate the economy by temporarily cutting the payroll tax that workers pay for Social Security from 6.2 to 4.2 percent. “This put money directly in the pockets of consumers, which had a noticeable effect on consumer spending,” McCarty said.

However, the cuts expired last month as part of the fiscal cliff negotiation. “It took a month for the increased withholding to show up in people’s paychecks, so the effect was delayed,” McCarty said.

Nonetheless, the UF study reveals that most consumers, and particularly seniors, are more positive than they were last month about their personal finances. For instance, survey takers’ overall perception that their personal finances had improved from a year ago rose six points to 65. And their expectations that they will be better off financially this time next year went up by one point to 76. In addition, their consensus over whether now is a good time to buy big-ticket retail goods, such as a washing machine, rose one point to 88.

However, respondents are more pessimistic about the future. Their expectations for the U.S. economy over the coming year fell four points to 72, but their faith in the nation’s economic health over the next five years fell even further, dipping seven points to 69.

“This negative outlook may mean that consumers are less bothered by the expiration of the payroll tax and more concerned about the effects of sequestration that are due to go into effect March 1,” McCarty said.

Consumer worry is already apparent. The stock market had hit new highs until the threat of sequestration caused the Pentagon and other agencies to announce possible budget cuts and the Federal Reserve to signal higher interest rates might be coming. These actions caused investors recently to pull back, McCarty said.

While the worst effects will be felt in the metro area around Washington, D.C., Florida will not escape.

“We have civilian businesses and grants to universities and others that will be cut back as the Pentagon makes large cuts for the remaining fiscal year,” McCarty said. “Agencies such as the Transportation Security Administration and the Federal Aviation Administration have signaled furloughs for their staff, which will make air travel a challenge, perhaps putting some people off of a Florida vacation. Many Floridians work for federal agencies either full time or part time and they will be affected, as will the multiple businesses that provide services to them.”

Any deal that Congress strikes on sequestration will trade some cuts for other cuts and tax increases, McCarty said.

“We are waiting to see which part of the population will take the brunt of that cut,” he added. “It is currently slated to be anyone hired by, or selling goods and services to, the federal government.”

Conducted Feb. 13-21, the UF study reflects the responses of 406 individuals, representing a demographic cross section of Florida.

The index used by UF researchers is benchmarked to 1966, which means a value of 100 represents the same level of confidence for that year. The lowest index possible is a 2; the highest is 150.

Details of the February survey can be found at http://www.bebr.ufl.edu/cci.