UF survey: Florida consumer confidence falls after terrorist attack

March 30, 2004

GAINESVILLE, Fla. — Consumer confidence among Floridians experienced its biggest drop in nearly 18 months, prompted by fears of additional terrorist attacks after the bombing strikes in Spain as well as continued pessimism about the job market, University of Florida economists report.

The preliminary index fell four points to 93 in March, the result of declines in three of the survey’s five components, said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. The slide was the largest since October 2002, when the index dropped eight points.

The biggest decline was in perceptions of the U.S. economy over the next year, which fell eleven points to 86, McCarty said. The other two falling survey components were perceptions as to whether it is a good time to buy big-ticket items, which dropped nine points to 108, and perceptions of personal finances now compared with a year ago, which fell four points to 84. The component measuring perceptions of future finances stayed the same, while the one for perceptions of the U.S. economy over the long term rose three points to 87.

“Confidence among Floridians appears to have gone down the same road as the national index did last month,” McCarty said. “Perceptions of the U.S. economy over the short term were no doubt shaken by the terrorist attacks in Spain and questions arising over the possibility of continued terrorist attacks. Fears of continued terrorism have had a clear effect on the stock market.”

Another factor contributing to the decline was continued pessimism over the net loss of jobs, which as time goes on looks like a permanent loss and affects buying conditions, he said.

Most economists attribute the sluggish recovery from the 2001 recession to lackluster job growth, he said.

In recent months, unemployment claims have consistently fallen below 350,000 each week, dropping to 339,000 for the week beginning March 20, McCarty said. In past recoveries, when claims fall below 350,000, net job creation begins to rise rapidly, he said.

“This has yet to happen with this recovery and many economists are wondering if it does not reflect a permanent structural change where many jobs have been outsourced, replaced by temporary workers who do not receive costly health-care benefits, or simply eliminated by increases in productivity,” he said.

In the coming months, consumer confidence will depend largely on how middle- and upper middle-income consumers fare, McCarty said.

“If you look at the trend in confidence over the past 10 months, it appears that consumers making less than $30,000 annually have fallen nearly 20 points below their more wealthy counterparts,” he said. “Many middle-income people were buffered from the effects of the recession by lowered interest rates and tax cuts.”

The big test will come when interest rates begin to rise, which will eventually happen, , McCarty said. But such increases are unlikely to occur before the election this fall, 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 March was conducted from 537 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.