UF study: Florida consumer confidence remains unchanged after drop

October 25, 2005

GAINESVILLE, Fla. — Florida’s consumer confidence remained unchanged in October at 78, but declines in two of the index components portend trouble for retailers this holiday season, University of Florida economists report.

Perceptions of whether it is a good time to buy major household items fell five points to 86, while perceptions of personal finances now compared to a year ago dropped five points to 75.

Two of the other three components rose and one remained steady. Perceptions of U.S. business conditions over the next five years increased three points to 73, and perceptions of U.S. business conditions over the next year rose seven points to 63 after a 19-point drop in September. Perceptions of personal finances a year from now stayed at 90.

This month’s total index, which was the same as last month, follows an 11-point drop in consumer confidence in September, its lowest level since August 2002.

“We expected the index to remain unchanged or to rise slightly in October, given the sharp decline in perceptions of short-term U.S. business conditions as a consequence of Hurricane Katrina,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “Typically, that component falls dramatically following disaster such as Katrina. It is not unusual for the effects of such disasters to be short-lived in terms of consumer confidence.”

Of concern, however, is the downturn in two of the indexes’ components, McCarty said.

“Declines in these indexes are more likely to affect the buying plans of consumers,” he said. “Perceptions of buying conditions are at their lowest level since August of 1992, and perceptions of personal finances are at their lowest since December of 2002. In my opinion, these two components tend to be a bellwether for consumer spending. Retailers this shopping season are likely to see a pullback in spending compared to last year.”

Sales have already declined recently as energy prices have spiked in recent months, McCarty said. The impact of high energy prices, particularly natural gas, will be even more of a burden during the winter, although this will be less of a problem in Florida where winters are less severe than in northern states, he said.

“But Floridians will still see large increases in their utility bills as a consequence of high energy costs that pre-date Katrina,” he said.

McCarty said he expects the index to remain around 78, and perhaps a bit lower, in November.

“As the Federal Reserve continues to tighten interest rates, and the price of gasoline and natural gas continues to rise, consumers will likely respond pessimistically,” he said. “By December we expect to see at least a slight decline in confidence.”

An analysis of the index and its components by characteristics of the respondent reveals some differences by age, McCarty said. Confidence fell by two points among people over age 60, while it rose one point to 80 for those under age 60. Older respondents were particularly less optimistic about buying conditions, with that component falling eight points to 87.

The Florida Consumer Attitude survey is collected monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for October was conducted from 411 responses. The error rate is plus or minus five 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.