UF Survey: Rising War Concerns Sink Florida Consumer Confidence

February 25, 2003

GAINESVILLE, Fla. — Florida’s consumer confidence fell in February to its lowest level in more than a decade, reflecting growing consumer anxiety over possible war in Iraq, University of Florida economists report.

This month’s consumer confidence index dropped from 83 to 80, its lowest reading since November 1992. Expectations about business conditions over the next year fell eight points overall to 59, and 14 points among those under age 60. Perceptions as to whether it is a good time to buy big-ticket household items fell six points to 94.

“The component measuring perceptions of short-term business conditions tends to be quite volatile,” said Chris McCarty, director of the UF Survey Research Center, which compiles the report. “This particular component fell dramatically following the Iraqi invasion of Kuwait in the early 1990s, and following 9/11. The fall is no doubt due in some part to rising tensions among consumers over the possible war with Iraq.”

The drop in the big-ticket item component also indicates consumers are skeptical about the potential of the economy to recover anytime soon, he said.

Although the housing market remains healthy, fueled by record low interest rates for new mortgages and refinancing, most signs indicate the economy is at a standstill, McCarty said. The primary culprit is a weak labor market: Businesses have not begun to rehire the hundreds of thousands of workers who were pared from their payrolls following the massive declines in the stock market, he said.

Retail sales in January reversed the previous pattern, with auto sales taking a back seat to other kinds of spending, McCarty said.

“Auto sales fell dramatically in January, but sales of fundamentals, such as groceries and gasoline, were well above expectations,” he said. “With consumer confidence declining

and the labor market what it is, consumers will refrain from making large purchases that may involve loans, despite record-low interest rates. The Federal Reserve and Congress are running out of options for stimulating an economy that many consider in danger of dipping back into a recession.”

The component measuring consumers’ financial situation now compared to a year ago remained the same at 77, while the measure of their personal financial situation expected a year from now dropped two points to 95. Expected national economic conditions over the next five years rose three points to 76.

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 February was conducted from 496 responses. The error rate is plus or minus 4 percent.

Consumer confidence is designed to help predict buying patterns by measuring the mood of consumers toward purchasing. 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.