UF survey: Florida consumer confidence steady in improved economy

April 27, 2004

GAINESVILLE, Fla. — Consumer confidence among Floridians remained steady in April, with optimism about buying big-ticket items amid signs of an improving economy balanced by concerns for the long-term health of the U.S. economy, University of Florida economists report.

The preliminary index remained unchanged at 94. Two of the survey’s five indexes rose, two fell and one stayed the same.

“Confidence levels in April are still relatively high and are six points above where they were at the same time last year,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “But it appears that the recent rise in consumer confidence from the first part of the year was due to the receipt of tax refunds from those who benefited from the tax cuts. Those who were due rebates have probably received them already.”

The largest hike was a four-point rise to 112 in perceptions about whether it is a good time to buy big-ticket items, such as furniture and appliances, and expectations about the short-term performance of the U.S. economy increased by two points to 89. Those gains were balanced by a three-point decline to 85 in perceptions of the U.S. economy over the next five years and a one-point decline to 100 in perceptions of personal finances a year from now. The index measuring perceptions of current finances was unchanged at 84.

The economy is improving, as evidenced by several signs, such as a decrease in the number of unemployment claims, a boost in demand for durable goods, and healthy consumer spending at retail and chain stores as shown by sales and survey data, McCarty said.

Weekly jobless claims have been falling and have now measured fewer than 350,000 each week for most of the year, except for a recent rise in April, McCarty said. In past recoveries, when claims fall below 350,000, net job creation begins to rise rapidly, he said.

Weekly unemployment claims reported on April 3 were 330,000, jumping to 362,000 on April 10 and falling to 353,000 on April 17, he said.

“The main reason for the recent jump in jobless claims is the effect of adjusting the data for seasonality,” McCarty said. Economists try to remove seasonal effects, such as Christmas and Easter spending, to get a better idea what the data are telling them, but last year Easter fell a week earlier than it did this year, he said.

Another positive economic sign was greater demand in March for durable goods, such as cars, appliances and furniture, implying the manufacturing sector also is recovering, McCarty said. April demand for these goods is not yet known because there is a one-month lag period for reporting the factory orders and shipments of these goods, he said.

“The fact that there was a rise in nondefense orders was good, meaning it was consumer-driven as opposed to being driven by the war in Iraq,” he said.

Despite these positive signs, the future remains uncertain, McCarty said. “The real question on everyone’s mind right now is what will happen when interest rates rise,” he said.

A decline in mortgage loans, particularly refinancing, is already occurring because of a rise in interest rates, McCarty said. Federal Reserve Chairman Alan Greenspan is signaling that an increase in the unusually low interest rates may come sooner rather than later, he said.

“Some consumers will be strongly affected by those increases, particularly those with high debt burdens and those with adjustable-rate mortgages,” he said. “While the effect may not be immediate, increases in interest rates will eventually put a damper on consumer confidence and consumer spending.”

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 426 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.