UF Study: Higher Gas Prices And Interest Rates Sink Consumer Confidence

March 28, 2000

GAINESVILLE, Fla. — Floridians’ consumer confidence tumbled eight points in March from its all-time high in the 15-year history of the index, reined in by rising oil prices and the Federal Reserve Board’s recent decision to raise interest rates, University of Florida economists report.

The preliminary index for March dropped from 110 to 102, representing the biggest one-month plunge in nearly 8« years, said Chris McCarty, survey director with UF’s Bureau of Economic and Business Research. Losses were registered for all five components that make up the survey.

“The Federal Reserve has been trying to get consumers to slow down their spending,” McCarty said. “Until now the quarter-point increases in interest rates have had little effect on either consumers or the stock market. The fall in consumer confidence this month may be a sign that the Federal Reserve has at least gotten their attention.”

Other concerns besides higher interest rates have dampened enthusiasm, UF economist Dave Denslow said, but they do not necessarily signal the economy is in trouble.

“Floridians are responding to higher gasoline prices, the turbulence in the stock market and rising interest rates,” Denslow said. “Although this is the biggest one-month drop in our index since October 1991, it is not an early recession warning. The current eight-point drop to 102 is only a faint echo of the plunge in confidence that led to a recession after oil prices soared in 1990. In that episode, from June to October 1990, our index fell 22 points to a very low 67.”

Although this month’s slump in consumer confidence was large, overall confidence is still high at 102, McCarty said. Typically, consumer confidence is considered high when it is above 90, and there is little danger of a significant pullback in consumer spending until it falls below 85, he said.

Of the five components tracked by the survey of Florida’s consumers, the largest loss was in the one measuring expectations about national business conditions during the next year. That index fell 13 points from 111 in February to 98 in March.

The bureau conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for March was calculated from 639 responses. Numbers for prior months are based on about 1,000 residents. The margin of error for the index is 3 percent.

Consumer confidence is designed to help predict buying patterns by measuring consumers’ mood toward buying. Although other economic indicators also are predictors of buying patterns, consumer confidence tends to be available sooner than those indicators.