Confidence Inches Up As Fla. Consumers Put Attacks Behind Them

January 29, 2002

GAINESVILLE, Fla. — People’s willingness to go on with their lives after the Sept. 11 terrorist attacks helped consumer confidence continue its slow climb in January, its fourth straight month on the rise, University of Florida economists said Tuesday.

The preliminary index rose one point to 92 in January, said Chris McCarty, director of UF’s survey research center at the Bureau of Economic and Business Research.

“A pattern has developed over the past few months with consumer confidence,” he said. “The rise in the index is due in part to a recovery in consumers’ short term outlook on business conditions.”

“This particular component is sensitive to short-term shocks to the economy such as the attacks and the war in Afghanistan,” he said. “The recovery of this component signals that increasingly consumers are able to put these events behind them and will begin to focus on other things to determine how willing they are to spend.”

The component measuring perceptions of short-term economic conditions in the United States rose seven points to 90. The other component most responsible for the rise in consumer confidence — perceptions of whether it is a good time to buy big-ticket household items — rose six points to 108.

“Another positive aspect of the economy is the low interest rates and continued low inflation,” McCarty said. “This translates into consumers saying this is a great time to buy big-ticket items like cars and refrigerators.”

By most measures, the time is right to buy because mortgage rates and refinance rates, though not as low as they were in October, still are relatively low compared with rates during the last decade, he said. Yet the unemployment rate has risen, personal income has declined and the rate of revolving credit among consumers has slowed as they try to pay off debt, McCarty said.

“On the negative side, consumers are being pinched by the recession,” he said. “Their debt burden is high and the layoffs are still coming.”

The component measuring perceptions of personal finances has continued to decline since June, when it was 93. That component now stands at 80, the lowest it has registered since November 1993.

This burden on the consumer is reflected in the final tally for holiday sales, which grew at a weak 1.6 percent, he said.

So although conditions are right for buying, consumers don’t feel their personal financial condition allows them to spend more, McCarty said. As a result, consumers cannot be depended upon to pull the economy out of recession any time soon, he said.

“Many economists have been predicting a recovery by the middle of this year,” he said. “In most cases, though, they warn that the recovery will be slow and there is a possibility we could fall back into a recession,”

The center conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for January was calculated from 405 responses. Numbers for prior months are based on about 1,000 responses. The margin of error for the index is 4 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 predict buying patterns, consumer confidence tends to be available sooner than those indicators.

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.