UF study: fuel prices continue to hurt Florida consumer confidence

August 30, 2005

GAINESVILLE, Fla. — Florida’s consumer confidence dropped three points to 92 in August, reflecting continued concerns over high fuel prices, University of Florida economists report.

The biggest drops were five-point declines in both of the components measuring perceptions of U.S. economic conditions. Perceptions of short-term economic conditions over the next year fell to 79, while perceptions of long-term economic conditions over the next five years fell to 83. Two of the other five components also declined. Perceptions of personal finances a year from now dropped three points to 97 and perceptions of personal finances now compared to a year ago slipped one point to 86. Perceptions of whether it is a good time to buy big-ticket items remained unchanged at 113, the same level it was in June.

“The consumer confidence survey is clearly reflecting concerns over energy costs, both in the short run and the long run,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “Consumers in Florida are reporting little change in their current personal finances but are anticipating problems in the coming year. This situation is unlikely to change much as gas prices – though expected to decline as summer demand falls – will not decline considerably.”

McCarty said it is noteworthy that the index component measuring perceptions of whether it is a good time to buy big-ticket items has remained the same, at a very high level, when the other components have dropped.

“Despite the rising cost of energy, and rising consumer debt, consumers still think that it is a great time to buy big-ticket items like cars and appliances,” he said. “This is reflected in the retail sales figures for July, which show a 1.8 percent increase in overall sales, particularly auto sales.”

But chain store sales have suffered recently, a trend that has been blamed on the rising cost of gasoline, McCarty said. And there are signs that the housing market is beginning to slow, although it has remained stubbornly resilient as investors look to housing as a better investment than the stock market, he said.

Confidence fell among both young and old, although it fell by four points among those older than age 60 and by two among those younger than age 60. The declines for Florida seniors were larger in the perceptions of personal finances, while for those under 60 they were higher in perceptions of U.S. economic conditions.

Consumer confidence on a national level as measured by the University of Michigan using the same questions fell sharply in August. The national index is now below that of Florida, which is in line with other economic indicators showing Florida in a better position than the rest of the country, he said.

“Moving forward, consumer confidence in Florida may remain steady as demand for gasoline declines somewhat and cooler weather reduces energy bills,” McCarty said. “In the long term, energy will likely remain at current levels since the changes that have brought on the increase, such as increased demand from China and India, are permanent changes.”

But McCarty said he expects confidence to decline as the housing market begins to cool. “Florida is one state that has experienced high rates of speculative investment,” he said. “As housing prices begin to stabilize, and even decline in some areas, some of those investors will undoubtedly be more pessimistic.”

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 August was conducted from 399 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.