UF survey: terrorist attacks sink Florida consumer confidence

September 25, 2001

GAINESVILLE, Fla. — Consumer confidence in Florida dropped sharply in September to its lowest level in more than five years, with the terrorist attacks on the World Trade Center and the Pentagon almost certain to sink the state into recession, University of Florida economists said today.

The preliminary index fell seven points to 87 in September, its lowest point since December 1995, said Chris McCarty, director of UF’s survey research center at the Bureau of Economic and Business Research. Four of the five components that make up the index fell, with the largest decline in the one measuring perceptions of economic conditions in the United States over the next year, falling 13 points to 72.

“While the attack on the World Trade Center clearly has significantly affected consumer confidence in Florida, our data show that confidence was already beginning to fall in the first part of September,” McCarty said.

As many economists have pointed out, the United States has barely been able to avoid a recession, with consumer spending playing a major role in the weak but continued growth in the economy, McCarty said. Yet consumers cannot support the economy forever through spending, he said.

“Unfortunately, the other part of the formula for a healthy economy, increased business investment and exports, is not likely to fare well following the attack,” he said. “It is now unlikely that we will be able to avoid at least some form of recession.”

There are some interesting parallels to the early 1990s when the United States was involved in the Gulf War, McCarty said.

In early 1990, the United States was coming out of a growth period and on the brink of recession. In August, Iraq invaded Kuwait and by October, consumer confidence plummeted to 67. The component most affected then, as in the current crisis, was perceptions of U.S. economic conditions over the next year, McCarty said.

Following the U.S. victory in the Gulf War in February, confidence was restored for a brief time, he said.

Unlike that time, a quick resolution to raise hopes seems unlikely, he said.

“All this does not bode well for retailers this holiday season,” McCarty said.

Retail sales have been strong despite the faltering stock market and increased layoffs, but this is in no small part due to tax rebate checks that may now have been spent, he said.

“Retailers should brace for a slower retail season than usual and look to 2002 for a return to normal spending patterns,” he said.

The center conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for September was calculated from 688 responses. Numbers for prior months are based on about 1,000 responses. The margin of error for the index is 3 percent.

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