UF: Weak Florida Consumer Confidence Bad Omen For Holiday Sales

September 30, 2003

GAINESVILLE, Fla. — Consumer confidence among Floridians remained unchanged this month, but a sharp drop in perceptions about whether it is a good time to buy big-ticket items may foreshadow a lackluster holiday retail season for the second year in a row, University of Florida economists report.

The preliminary index remained steady at 90 from the previous month, although there were changes in four of its five components. The biggest change was in the component measuring consumer perceptions about buying major household items, which fell seven points to 99.

“Overall, the combination of the trends in consumer confidence and other economic indicators suggests mediocre holiday sales at best,” McCarty said. “Holiday sales last year were weak for retailers as the economy was just beginning to form a recovery from the recession of 2001. While there have been some gains since then, the net loss of 3 million jobs, record debt, the slowing of refinancing activity and lack of pent-up demand suggest another weak holiday season for retailers.”

Three components of the index rose slightly. Perceptions of personal finances now compared with a year ago rose by two points to 84, while expectations about personal finances a year from now rose three points to 103. Expectations about the U.S. economy over the next five years rose one point to 83. Remaining unchanged at 83 were expectations about the U.S. economy over the next year.

“Although the overall index remained the same and is consistent with other economic indicators, the sharp fall in perceptions of buying conditions is alarming,” he said.

Recent spending has been driven by the tax cut and mortgage refinancing, McCarty said. Although withholding taxes will be lower, there will be no more rebate checks without another tax cut, he said.

Despite low interest rates and retailers sacrificing profits to keep prices low, there is weakness in the sale of durable goods, or big-ticket items, McCarty said. This can be attributed to people having purchased these items throughout the recession so there is little pent-up demand and an unwillingness to take on additional debt in a climate where job security is by no means a certainty, he said.

Many aspects of the market have not changed for consumers for months, McCarty said. Interest rates remain low and inflation is almost nonexistent, while retailers still offer competitive prices on cars, furniture, electronics and other items to lure consumers, he said.

Some of the explanation may be in the record amount of consumer debt and the reluctance of consumers to take on more, McCarty said. Rising mortgage interest rates have dramatically slowed refinancing activities, effectively cutting off a major source of financing for large purchases, he said.

“Our interpretation of this is that consumers are cautious about taking on more debt, given the uncertainty of the economy over the next year as reflected in that component,” he said.

That, coupled with growing concern over the potential for job losses, consumers may slow their rate of spending in the coming months, McCarty said. This already can be seen in a gradual slowing of growth in retail sales and recent decreases in sales at chain stores, such as Wal-Mart and Kmart, 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 September was conducted from 425 responses. The error rate is plus or minus 5 percent.

Consumer confidence is designed to help predict buying patterns by measuring consumers’ moods 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.