UF study: gas prices and interest rates hurt consumer confidence

Published: May 31 2005

Category:Business, Florida, Research

GAINESVILLE, Fla. — Florida’s consumer confidence fell two points to 89 in May, reflecting concerns about high gas prices and rising interest rates, University of Florida economists report.

The biggest drop was a four-point decline to 86 in the component measuring perceptions of personal finances now compared with a year ago. That component had shown some signs of improvement the month before. Three other components fell by one point: perceptions of personal finances a year from now to 95, expectations about the U.S. economy over the next year to 76 and perceptions about whether it is a good time to buy big ticket items to 109.

The only component to rise was perceptions of the U.S. economy over the next five years, which rose two points to 82.

“Consumer confidence among Floridians is now four points lower than it was in May of 2004,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research, where the research was conducted. “Overall, consumers are reacting negatively to the high price of gasoline and energy prices in general. Rising interest rates are also putting pressure on households carrying large amounts of debt. Particularly at risk are those with adjustable rate and interest only mortgages that are seeing the cost of housing rise.”

The lower consumer confidence comes at a time when employment finally seems to have picked up after the long period of low growth following the 2001 recession, McCarty said. Gas prices have temporarily declined, although they have been high and likely will increase again this summer, and the stock market also has experienced some recent gains, he said.

Sales of existing and new homes have hit record levels, but that actually may reflect an increase in buying for investments, rather than people buying homes to live in, he said. “I think it is safe to say that we are in a delicate time right now in terms of consumer confidence,” McCarty said. “There are certainly some positive signs that things are getting better. But as has been the pattern for some time now, things seem to be getting better for those with higher incomes than for the majority of people with moderate to low incomes.”

The decline in confidence in May was mostly among lower-income households, McCarty said. Respondents from households with annual incomes of less than $30,000 registered a seven-point drop in consumer confidence, from 81 in April to 74 in May. In contrast, respondents from households with incomes $30,000 or more registered a two-point increase to 98.

The biggest factor in the decline for lower income households was in the component measuring personal finances now compared with a year ago, which fell by 12 points to 61. For higher income households, it remained at 100. Respondents over 60 also experienced a sharp decline in that component, from 76 to 69.

“Moving forward, I do not expect any large increases in consumer confidence, at least until the price of gasoline falls significantly, or consumers permanently factor the higher prices into their household spending,” 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 May was conducted from 424 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 predict buying patterns, consumer confidence tends to be available sooner.

The index is benchmarked to 1966, so 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.

Credits

Writer
Cathy Keen, ckeen@ufl.edu, (352) 392-0186
Source
Chris McCarty, ufchris@ufl.edu, (352) 392-2908

Category:Business, Florida, Research