UF Survey: Elections And Rate Cut Boost Florida Consumer Confidence

November 26, 2002

GAINESVILLE, Fla. — Consumer confidence among Floridians made a stunning recovery this month, reflecting optimism about the midterm election results and the Federal Reserve’s latest cut in the federal funds rate, University of Florida economists report.

This month’s consumer confidence index rose eight points to 90, regaining the ground lost in October. Clear gains occurred in four of the five components that make up the index. The largest increases were in those measuring consumers’ perceptions of short-term business conditions, which jumped 13 points to 81, and long-term business conditions, up 11 points to 86. The component measuring current personal finances also rose by nine points, while the one gauging expectations about personal finances a year from now remained relatively unchanged from its already high level.

“The results mirror what is happening nationally with consumer confidence,” said Chris McCarty, director of the UF Survey Research Center, which compiles the report. “The large drop in the October index came on the heels of a more or less steady drop in confidence since June.”

The rise in confidence is most likely attributable to two things, he said.

“Overall respondents appear to be happy with the results of the midterm elections, viewing this as a vote for stability at a time when the economy is wavering. The other big event this month was a half-point cut to the federal funds rate by the Federal Reserve. Consumers are clearly interpreting these things as helping their bottom line,” McCarty said.

While the rate cut is unlikely to have as big an effect on consumers’ personal finances as earlier rate cuts, it likely will stimulate another round of refinancing, allowing consumers to tap into the equity in their homes to fund current spending and debt consolidation, he said.

Although the Federal Reserve’s action will not dramatically lower mortgage rates, the refinancing boom is not over and may help consumers maintain spending during the holidays, McCarty said.

However, record levels of debt, foreclosures and bankruptcies, largely due to liberal lending on the part of banks, threatens to dampen holiday spending, he said.

“While consumers may be more upbeat than they were last month, some of the confidence index components remain low,” he said. “We still predict a weak retail season with overall sales increasing at no more than 3 percent.”

The component measuring consumers’ perceptions of current personal finances is still low, and one assessing short-term expectations about the economy is somewhat low, he said.

Data on consumer spending is mixed going into the holiday season, McCarty said. Retail sales data for October was flat compared to September. When auto sales were excluded, however, retail sales actually grew 0.7 percent, a rate higher than expected, he said.

Clothing and accessories, including jewelry, was a big winner last month, growing by 4 percent over September and 3.6 percent over a year ago, McCarty said.

On the down side, chain-store sales for the second week in November fell 1.2 percent compared to the previous week. “This indicator, which covers large retail chains such as Wal-Mart, Target and K-mart, is often viewed as an indicator of future trends,” 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 November was computed from 401 responses. The error rate is plus or minus 4 percent.

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

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.