Florida's housing downturn stymies consumer confidence turnaround
GAINESVILLE, Fla. — The weak housing market is to blame for Florida’s one-point drop in consumer confidence to 81 in July at a time when the national index is on the rise, a new University of Florida study finds.
The dip was fueled by declines in three of the five components that make up the state index. Perceptions of personal finances now compared to a year ago fell six points to 72; perceptions of U.S. economic conditions over the next five years dropped three points to 79; and perceptions of U.S. economic conditions over the next year slipped two points to 73. The two components to increase were perceptions of whether it is a good time to buy big-ticket items, which rose five points to 92, and perceptions of personal finances one year from now, up one point to 89.
“Consumer confidence among Floridians seems to be in a holding pattern for the past few months,” said Chris McCarty, director of the Survey Research Center at UF’s Bureau of Economic and Business Research.
Although the overall index is virtually flat, fluctuations in its individual components reveal a more detailed picture, he said.
“The reading for perceptions of personal finances has not been this low since October 2002 when the stock market experienced a temporary crash and the Dow Jones Industrial Average lost 27 percent of its value,” McCarty said. “Although there have been some recent declines in the stock market, over the month of July the stock market experienced record levels. Something else is bothering consumers.”
Retail sales nationally were weak in June, but they appear to be far worse in Florida, data from the Florida Department of Revenue show, McCarty said.
In another departure from the country as a whole, the national consumer confidence index as measured by the University of Michigan was at a five-month high in July at 90, nine points above Florida’s rating, he said.
“Typically, Florida tracks the national consumer confidence very closely,” McCarty said. “It is becoming increasingly clear that Florida’s economy is moving in a different direction than most of the country.
“We have been saying for quite some time that Florida’s economy is in a vulnerable position due to the effects of the declining housing market,” he said. “We attribute a large part of the decline in consumer confidence in July to the very weak housing market in the first and second quarter of 2007.”
As the rest of the year unfolds, it is likely that the effects of the housing downturn will become even more pronounced, McCarty said. This will be seen in the form of lower retail sales resulting from declines in home equity, and continued stagnation in home sales as inventory builds, he said.
Ultimately, the housing slump will hurt state revenues because the largest portion of the general revenue fund is financed from taxable sales, he said.
“Our expectation is that consumer confidence in Florida will decline a bit further and will remain low for the remainder of 2008,” 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 503 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.