Consumer confidence rises in July, but likely to fall in next few months

July 25, 2006

GAINESVILLE, Fla. — Consumer confidence among Floridians rose one point to 89 in July, but the slumping real estate market is likely to cause it to decline over the next several months, University of Florida economists report.

“The rise in confidence among Floridians was weak and is starting to show signs of the increased burden on consumers,” said Chris McCarty, director of the survey research center at UF’s Bureau of Economic and Business Research. “The index and all five of its components are below their values from a year ago.”

The source of this month’s gain from June was derived from only two of the five components that make up the index. Perceptions of whether it is a good time to buy big-ticket items rose five points to 103 and expectations about personal finances a year from now rose five points to 99. However, perceptions of personal finances compared to a year ago fell four points to 83, while expectations of economic conditions over the next five years fell three points to 83. Perceptions of U.S. economic conditions over the next year remained the same at 77.

The decline in the component measuring perceptions of personal finances was particularly large for Florida seniors and lower-income households, McCarty said. The major reasons for the downturn were consistently high energy prices and the rise in interest rates, he said.

“Although consumer confidence was up a point in July, we expect the index to decline over the next several months,” McCarty said. “We expect a fairly pronounced effect here in Florida from the decline in the real estate market. This will come as a leveling or decline in home equity, the loss of construction jobs and declining sales for products related to home construction, such as appliances.”

McCarty said he expects to see the full effect of this decline by the end of the year or by the end of the first quarter of 2007. Retail sales and chain store sales are already falling off, 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 July was conducted from 456 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.