Higher gas prices cause dip in Florida consumer confidence
GAINESVILLE, Fla. — Rising gas prices were the likely cause of a two-point dip in consumer confidence in April to 89, following a four-point hike in March, University of Florida economists report.
“Increasingly, consumer confidence seems to be driven by the price of gasoline,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “The rise in confidence last month appears to have been a lagged reaction to lower gas prices in February. But we have more than made up for those drops in the past two months, and gas prices are headed upward as the summer traveling season approaches.”
Like the previous month’s rise, the decline in April was broad-based. All five of the index components fell. The largest drop was in perceptions of U.S. business conditions over the next five years, which dropped four points to 79. Each of the other four components fell by two points; expectations about U.S. business conditions over the next year, to 79; perceptions of personal finances now compared with a year ago, to 87; perceptions of personal finances a year from now, to 94; and perceptions of whether it is a good time to buy big-ticket items, to 104.
Overall, the index is two points lower than at the same time last year.
“Although employment levels remain high, particularly here in Florida, consumers are being squeezed by high energy prices and high levels of debt,” McCarty said. “Consumers are certainly beginning to curtail their spending in reaction to the rise in gasoline.”
Recent gas price increases have been spurred by higher costs of crude oil internationally in response to concerns over some oil-producing countries, such as Iran and Nigeria, as well as by domestic oil refineries adapting changes in the regulations covering the formula for gasoline, McCarty said. Looking ahead, domestic demand will drive changes in the price of gasoline, as is the case during the summer months, he said.
“Some analysts expect gasoline to rise by as much as 15 cents, pushing the price for regular unleaded in most parts of Florida above $3 (a gallon) this summer,” he said.
For a variety of reasons, McCarty said he expects to see consumer confidence to decline further this year. In addition to the negative effects of rising energy prices and higher levels of debt, a slowdown in the housing market is likely, he said.
The inventory of houses and condominiums in some Florida markets is expanding as a result of higher interest rates and fewer creative lending agreements, such as no-interest loans, McCarty said.
“In most of Florida that will mean a return to single-digit appreciation in housing prices,” he said. “But in some markets that will mean no appreciation or even a decline in prices for some high-end homes.”
This will have a cascading effect on consumers who are barely able to afford their new homes and those who are still planning to use their home equity to fuel 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 April 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 the year. The valley of the index is in comparing changes over time rather than looking at an isolated month.