Low home sales and high fuel prices hit consumer confidence

May 30, 2006

GAINESVILLE, Fla. — Consumer confidence among Floridians in May did not budge from its April level of 86, the likely result of a downturn in the housing market and continued high fuel prices, University of Florida economists report.

“Confidence remains low as gas prices remain near historical highs with no sign that they will retreat any time soon,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “We are also seeing an anticipated softening in the real estate market, particularly among those using Florida real estate as an investment.”

Existing home sales are down and inventories are up, McCarty said. New home sales are sluggish considering the incentives builders must offer to lure buyers, he said.

There were changes within the five indexes that make up consumer confidence, however, he said. Perceptions of personal finances now compared with a year ago rose five points to 89, and perceptions of whether it is a good time to buy big-ticket items rose one point to 103. But the gains were offset by a decline in expectations about U.S. business conditions over the next year, which fell four points to 72, and expectations of U.S. business conditions over the next five years, which fell two points to 76. Expectations about future personal finances remained unchanged at 92.

And although consumer confidence remained unchanged among Floridians as a whole, there were large differences in subgroups.

There was a one-point increase in confidence among households making more than $30,000 annually, while those making less than $30,000 declined eight points to 67, McCarty said.

“This was particularly pronounced when looking at personal finances now compared to a year ago, which fell among lower income households by 18 points,” he said. “In contrast, overall confidence among Florida seniors rose by two points to 83, based on increased optimism about personal finances.”

In the future, McCarty expects consumer confidence to stay in the mid-80s and perhaps decline further, he said. Fuel prices are expected to remain high over the summer and the real estate market will continue to decline as interest rates rise and inventories build, particularly those of condos, he said.

“These factors, combined with the potential for an active hurricane season, may spell trouble for Florida consumers in the months ahead,” 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 416 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 value of the index is in comparing changes over time rather than looking at an isolated month.