UF Economist: Holiday Sales Test Value Of Consumer Confidence

Published: December 30 1997

Category:Business, Florida, Research

GAINESVILLE — Consumer confidence, which remains relatively strong in the state despite a one-point drop in December, may prove to have little value in predicting Christmas sales based on early reports from this season’s retailers, say University of Florida economists.

Current high confidence levels and other traditional indicators of economic health caused UF economists to expect sales this Christmas to surpass those of last year by at least four percent, said Chris McCarty, survey director for UF’s Bureau of Economic and Business Research. However, early reports show somewhat weak sales, perhaps as low as 2 to 3 percent over last year, he said.

“If sales don’t reach four percent this year with confidence as high as it has been and other indications that the economy is running strong, we have cause to question the value of using consumer confidence for predicting Christmas sales,” McCarty said.

The preliminary consumer confidence index for December dipped to 99, its second drop since its eight-year high of 102 in October, said economists with the bureau, which conducts the survey.

“In many respects consumer confidence is undergoing a test this Christmas,” McCarty said. “One of the things we expect from this index is that it will predict sales of durable goods, that is, goods that are frequently bought on credit and that consumers have some discretion as to when to buy them.”

Another possible explanation for the disparity between consumer confidence and early reports of holiday retail sales is that Christmas shopping patterns have changed over the past few years. Consumers may be reluctant to make purchases even though they are in the stores to buy, McCarty said. Retailers may have to look to the three weeks after Christmas to fully realize the sales that traditionally were made in three weeks before and the one week following Christmas Day.

“Last year we felt the index did a good job of predicting a weak shopping season,” said McCarty, explaining that consumer confidence as measured by the index was actually falling as the holiday season approached. “This year the index also fell as the holiday season approached, but the overall level of the index was so high we had no choice but to predict strong sales.”

Leading this month’s decline was a four-point fall in optimism about current finances, a component rising since August. Also contributing to lower confidence was increased pessimism about the national economy over the next five years and whether now is a good time to buy expensive consumer items, McCarty said.

Regionally, consumer confidence declined slightly in the central, north and southwest sections of Florida, although the change was not statistically significant. Overall, southeast Florida remained unchanged.

As with the state index, the big declines were in current personal finances. Both central and north Florida showed sharp declines in this component that were statistically significant despite the small sample size.

The bureau conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for December was calculated from 936 responses. Numbers for prior months are based on about 1,000 responses.

The margin of error for the statewide index is two points, while that for the regions is five points.

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Cathy Keen

Category:Business, Florida, Research