UF Study: Temporary Drop In Gas Prices Boosts Consumer Confidence

June 28, 2005

GAINESVILLE, Fla. — Florida’s consumer confidence jumped six points to 97 in June, reflecting temporary reductions in gasoline prices and gains in the stock market, University of Florida economists report.

The biggest gain was an 11-point rise to 90 in expectations about the U.S. economy over the next year. The remaining four components of the index also rose. Perceptions of the U.S. economy over the next five years increased eight points to 90. Two components rose four points, perceptions of personal finances now compared to a year ago to 91 and perceptions as to whether it is a good time to buy big-ticket items to 115. Expectations about personal finances a year from now rose three points to 99.

“The gains this month were largely unexpected,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “There is no doubt that Florida’s consumers are much more optimistic this month.

“Much of the rise in confidence can be attributed to a temporary reduction in gasoline prices, as well as temporary gains in the stock market,” he said. “Both have recently returned to pre-June levels, though, with the price of oil hitting $60 a barrel, and the stock market falling below 10,300.”

In other positive news, home sales have been quite active this month, but the average price of homes has begun to stabilize and in some places started to fall slightly, McCarty said.

“Moving forward, we expect consumer confidence in July to fall somewhat as the price of gasoline will start to reflect the rising cost of oil and will be bid up, as is normal, by summer travelers,” he said. “We also expect recent losses in the stock market to be reflected in the index.”

Much of the gain in Florida’s consumer confidence for June was from households making more than $30,000 a year, McCarty said. For those consumers, the overall index rose
four points to 103, while it increased only two points to 79 for lower-income households, he said.

There also was a large gain in the index for Floridians aged 60 and older, which rose 10 points to 82. The index for their younger counterparts remained unchanged at 96.

“Florida seniors are probably encouraged by recent news about radical changes to Social Security being unlikely,” 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 June was conducted from 408 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.