UF Survey: Recession Looms With Drop In Florida Consumer Confidence
GAINESVILLE, Fla. — Florida’s consumer confidence fell sharply in October, dampening hopes of an economic recovery and suggesting the state could sink into another recession, University of Florida economists report.
This month’s consumer confidence index fell six points to 84, its largest drop in six months, with declines in four of the five components that make up the index. Expectations about short-term business conditions fell 12 points to 72, while both components measuring consumers’ perceptions of personal finances – now compared with a year ago and future expectations – each dropped eight points. The component measuring expectations about long-term business conditions slipped one point.
“These numbers are consistent with the onset of another recession,” said Chris McCarty, director of the UF Survey Research Center, which compiles the report. “The fall in consumer confidence in the last recession that occurred in the first quarter of 2001 was not nearly this bad.”
The difference between then and now is that consumers accumulated massive wealth during the 1990s, particularly in real estate, and so successfully buffered themselves from the effect of the 2001-02 recession by tapping into home equity, McCarty said. Now that buffer has been largely used up, and some consumers have overextended themselves, as seen by record numbers of bank foreclosures, late mortgage payments and repossessions of automobiles, he said.
UF economist Dave Denslow said the sharp downturn in consumer confidence could be bad news for Gov. Jeb Bush and other Republicans seeking election next week because any economic effect on the outcome likely would hurt incumbents and the party in power.
“Given how close the polls indicate the race is between (Bill) McBride and Bush, it would not be the major factor — it is certainly less important than education — but nonetheless almost anything like this could matter, given how narrow the race is,” he said.
The fall in consumer confidence and recent sales patterns also do not bode well for holiday-season sales, Denslow said. “The holidays will be slow, with retailers keeping inventories down and shoppers spending cautiously,” he said.
Chain-store sales have been lackluster this year, falling below disappointing levels last year, McCarty said. Retail sales, which have been largely bolstered by auto sales, are falling as pent-up demand for cars and trucks has been met, and those sales are slumping, he said.
In light of weak sales during the back-to-school season – traditionally the second-largest for retailers – and falling consumer confidence, overall retail sales growth for the holiday season likely will not top 3 percent, McCarty said. The repercussions may be enough to reduce the gross domestic product to recession levels in the first quarter of 2003, he said.
“People are concerned about debt, jobs, gasoline prices and the stock market,” Denslow said. “Retirees are collecting low interest on their certificates of deposit. The climb of housing prices might be easing, reducing mortgage refinancing. Floridians have become less and less positive about their personal finances.”
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 October was computed from 385 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 buying. Although other economic indicators also are predictors of buying patterns, consumer confidence tends to be available sooner.
The index is benchmarked to 1966, so that 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.