UF survey: Florida consumer confidence up with swift war outcome

April 29, 2003

GAINESVILLE, Fla. — Consumer confidence among Floridians surged in April amid optimism over the swift and decisive outcome of war in Iraq, University of Florida economists report.

The preliminary index rose six points to 87 in April, said Chris McCarty, director of UF’s survey research center at the Bureau of Economic and Business Research.

“This rise in confidence was expected following a quick and positive outcome to the war in Iraq,” McCarty said. “The question is whether this rise in confidence will be sustainable.”

Short-term perceptions of U.S. business conditions rose 18 points to 80, and long-term perceptions rose 14 points to 87. Views about whether it is a good time to buy big-ticket items rose six points to 96. The other two components measuring perceptions of personal finances each fell.

“The two components of the index most affected by the war were those measuring perceptions of U.S. business conditions,” McCarty said. “These tend to be the most volatile of the five components and the most affected by sudden events.”

The component measuring personal finances compared with a year ago fell six points to 77, the same level as in January, while one measuring perceptions of personal financial situation expected one year from now fell one point to 97. Declines in these components are largely the result of increased numbers of claims for unemployment insurance, he said.

“While there have been some signs that the economy may be set for a turnaround, recent rises in claims for unemployment insurance suggest that we are a long way from a full recovery,” he said.

Many people have assumed the stalled economic recovery was caused by the war in Iraq, while others have blamed it on the Sept. 11, 2001, terrorist attacks, McCarty said. While those things have contributed to caution among consumers and investors, the fundamental problem with this recovery predates both, he said.

“The same forces that led the Federal Reserve to lower interest rates to four-decade lows and the White House to push huge tax cuts are still very much there,” he said.

U.S. companies have not begun to rehire those laid off following the crash of the dot-com industry in 2000 and the accounting scandals in 2001, McCarty said.

“The recent rise in confidence is probably short-term euphoria that will wear off as attention turns from Iraq back to what is happening here at home,” 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 April was conducted from 400 responses. The error rate is plus or minus 5 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.