UF Economists: Florida’s Consumer Confidence Falls; "Quick Fix" Unlikely

August 27, 2002

GAINESVILLE, Fla. — Fueled by pessimism about personal finances, Florida’s consumer confidence fell again this month and is unlikely to rebound quickly, University of Florida economists report.

This month’s consumer confidence index fell three points to 87. The fall was due entirely to a drop in a single component measuring consumers’ perceptions of their current financial situations now compared to a year ago. This measure fell sharply by 12 points to 75, its lowest point since November 1993, said Chris McCarty, director of the UF Survey Research Center, which compiles the report.

The other components, which gauge consumers’ views on the nation’s economy and whether it is a good time to purchase major household items, all were within a point of last month’s levels.

“This is an alarming result given current economic conditions,” McCarty said. “The personal finances component tends to be less affected by short-term forces. When people are suddenly saying their own finances are worsening, it is pretty concrete evidence that their spending power is declining.”

The decline in optimism is particularly bad in the current climate, in which many economists now consider another recession likely, McCarty said. Because of weakness in other areas of the economy, consumers are expected to maintain a certain spending level until businesses can become profitable again, he said.

“This result suggests that, at least in Florida, that is not a realistic expectation,” he said. “It is also a less-volatile component than the others, meaning that a recovery from the increased pessimism will most likely take a few months to rebound. There is unlikely to be a quick fix for this.”

The drop in personal finances is more severe in households having annual incomes of more than $30,000, partly because of the volatility of the stock market and its effects on portfolios, particularly retirement accounts, McCarty said. Among respondents 60 and older, 43 percent said they were worse off than a year ago, he said.

The decline in the personal finances reading suggests that without changes to their job prospects and incomes, consumers will pull back on spending as the holiday season approaches in November, he said.

“Retail sales have been holding their own over the past several months,” he said. “However, the biggest increases in retail sales over the past few months have been in the health-care industry and autos sales – the latter fueled by incentives such as rebates and low-interest loans. In contrast, [sales of] clothing and furniture have been relatively anemic in terms of growth. Sales at chain stores in August have been below expectations.”

It appears the economy is neither gaining nor losing ground, he said.

Although layoffs are decreasing, new jobs are not being created to make up for previous layoffs, McCarty said. And while the number of personal bankruptcy filings did not increase much last quarter, they remain at record highs, 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 August was computed from 459 responses. The error rate is plus or minus 5 percent.

Consumer confidence is designed to measure the mood of consumers towards buying, and thus help to predict buying patterns. Although other economic indicators also are predictors of buying patterns, consumer confidence tends to be available sooner than these 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.