Drop In Consumer Confidence Reflects Doubt About Big-Ticket Sales

November 25, 2003

GAINESVILLE, Fla. — Consumer confidence among Floridians fell two points this month, prompted almost entirely by increased pessimism about whether it is a good time to make large purchases, such as appliances, furniture and cars, University of Florida economists say.

The overall preliminary index fell to 93, with the component measuring whether it is a good time to buy big-ticket items falling eight points to 106, said survey Director Chris McCarty. The other four components were far more stable. Perceptions about personal finances now compared with a year ago and with a year from now each posted one-point declines, while expectations about U.S. economic conditions rose one point for the short term and three points for the long term.

“There is extreme volatility in consumer perceptions about their spending right now,” McCarty said. “In the past three months, perceptions of whether it is a good time to buy big-ticket items that often must be purchased on credit fell six points, then rose 14, then fell by eight.”

Consumers see bargains as a result of a competitive retail market but don’t know whether to take advantage of them because of uncertainly about taking on new debt, given the lingering uncertainty about jobs and continued increases in existing nonrevolving debt, McCarty said. In addition, sources to pay for new spending, such as tax rebate checks and mortgage refinancing, now are virtually gone.

Indicators such as falling chain-store sales and lower total retail sales for October show a slowing in consumer spending, he said.

Sales on Friday, the day after Thanksgiving, typically the biggest shopping day of the year, are not likely to be robust, McCarty said.

“I would predict it won’t be as big as in past years, but probably more than last year,” he said. “I think it will be mediocre at best.”

For the entire holiday season, though, retailers can expect modest sales growth – perhaps 5 percent – only because sales in the 2002 season were so weak, he said.

Growth is measured by comparing sales of the current year with those of the previous one. Because last year’s holiday retail season was meager by every measure, it should not be difficult to get strong sales by comparison, McCarty said.

Typically, retailers consider growth of 5 percent or more as good, between 3 percent and 5 percent as variable and less than 3 percent as weak, he said.

“This year it should be relatively easy to get 5 percent growth because last year was such a bad year, when everybody was really feeling the pinch from the recession,” he said.

Retailers, including auto manufacturers, are pricing aggressively to maintain sales levels and market share, he said.

“Even with a 5 percent growth over last year, many retailers are sacrificing profits, which will affect their bottom lines,” he said.

Recent economic indicators suggest improvement in the job market, McCarty said. The number of new claims for unemployment has been well below 400,000 for the last several weeks, and the number of new jobs created in October as reported by the Department of Labor rose to 126,000, he said.

Some debate remains about the meaning of these numbers, though, he said.

“Many interpret them as an indication that (economic) recovery is finally on its way and these are signs of rehiring,” he said. “Others say many of the jobs are temporary and the net increase in jobs actually represents an abatement in layoffs rather than an actual increase in the number of jobs. The coming months should tell whether the recovery is on its way or stalled.”

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 conducted from 467 responses. The error rate is plus or minus 4 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.