UF Survey: Confused Consumers Give Shaky Nod Of Confidence

June 25, 2002

GAINESVILLE, Fla. — Consumer confidence among Floridians did an about face in June, but the reversal is muddled by mixed signals from state residents apparently perplexed about the true condition of the economy, University of Florida economists said today.

The preliminary index rose two points to 95 this month in contrast to last month when it fell two points, said Chris McCarty, director of UF’s survey research center at the Bureau of Economic and Business Research.

“We are in a very strange time regarding consumer confidence,” McCarty said. “Last month the Florida index was down while the national index as measured by both the University of Michigan and the Conference Board was up. This month we are up and the preliminary University of Michigan index is down. My best interpretation is that many of the economic indicators are sending mixed signals about the direction the economy is moving, and like economists, consumers are confused.”

The primary sources of this month’s increased optimism were a 10-point increase in the component measuring whether it is a good time to buy major household items and a four-point rise in perceptions of personal finances now compared with a year ago. The only component to drop gauged views of U.S. economic conditions over the next year, falling 10 points to 86.

“Consumers can’t make up their minds if they are in a good position or not,” McCarty said. “On the one hand, interest rates are extraordinarily low so borrowing money is cheap. On the other, many consumers have already borrowed more than they would like.”

On the positive side, massive layoffs have abated and jobless claims have decreased, although slowly, indicating that companies are beginning to rehire, McCarty said. Also, inflation remains virtually nonexistent, and the Federal Reserve has kept interest rates low in order to stimulate consumer demand, he said.

Consumers have been slow to respond, however, as seen by relatively weaker retail sales in May, McCarty said. When buying, consumers are favoring imported goods over those produced domestically as reflected in a growing trade deficit. Overall personal income has not risen, and consumer debt is still quite high, he said.

“This month’s increase is due not only to perceptions that it is a good time to buy, but that personal finances are stronger than last month,” he said. “This is particularly pronounced among lower-income groups, who experienced a 22-point increase in perceptions of current personal finances and a 29-point increase in perceptions of whether it is a good time to buy major household items.”

Although consumers seem confused by the economy, UF economist Dave Denslow is unfazed.

“The way to read this is that consumers, their confidence steady in spite of higher gasoline prices and mortgage rates, plan to keep on spending as they have throughout the past two years,” he said. “Business investment remains weak and consumers could change their minds at any time, but as long as their spirits hold up, we’ll avoid a double-dip recession.”

This occurs when the economy comes out of a recession but isn’t strong enough to maintain continued positive growth and quickly goes back into one again, he said.

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 June was compiled from 403 responses. Numbers for prior months are based on about 500 responses. The margin of error for the index is 5 percent.

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.