Property tax and economic stimulus plans boost consumer confidence

February 26, 2008

GAINESVILLE, Fla. — Passage of the national economic stimulus package and state property tax amendment helped boost Florida’s consumer confidence by four points to 74 in February after last month’s decline to its lowest level in 16 years, a new University of Florida study reports.

Four of the five components that make up the index rose this month. The largest increase was in perceptions of national economic conditions over the next year, which jumped 11 points to 66, followed by expectations of national economic conditions over the next five years, which rose eight points to 82. Two components edged up two points: perceptions of personal finances now compared with a year ago to 67, and expectations of personal finances a year from now to 84. The only component to fall was perceptions of whether it is a good time to buy big-ticket items, which dropped three points to 71, its lowest point since December 1991.

“We certainly did not expect this increase,” said Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research. “We think the overall rise this month is a reaction to the passage of the stimulus package that will result in payments to a majority of Florida households as well as the passage of the property tax amendment, which was supported by 64 percent of the voters. Both of these are, at least temporarily, bright spots for Florida consumers.”

The data over the past two months shows that confidence fell steadily through January, rose during the first week of February and increased dramatically in the second week, McCarty said. By the third week of February, confidence had fallen to January levels, he said.

“We expect this month’s overall rise in confidence to be a temporary increase and that confidence will decline next month,” he said.

Higher consumer confidence levels come at a time when policy makers are trying to avert a recession or at least minimize the effects of one, McCarty said. However, the positive effects of both the stimulus package and the property tax amendment will probably be short-lived, and the Federal Reserve Board’s decision to cut interest rates carries some negative side effects, he said.

“By lowering interest rates, which may help loosen credit for borrowers, the Federal Reserve has further weakened the dollar against other currencies,” McCarty said. “This has contributed to the rise in the price of oil and other commodities as can be seen in the recent rise in the price of a gallon of gas, which has increased more than seven cents in the past week.”

Although the stimulus package offers a welcome rebate check, those borrowed funds add to the deficit, McCarty said.

“And the property tax amendment will no doubt result in fewer services at the local level, and may have long-term downside effects on the state economy as homeowners take their tax exemptions with them when moving in Florida,” he said.

There are some bright spots for Florida homeowners hoping to sell, though, McCarty said. For instance, the property tax amendment makes it more affordable to move to a new home, he said. The stimulus package passed by Congress temporarily increases the loan amounts that can be purchased by Fannie Mae and Freddie Mac from $417,000 to $729,750, and Florida has no shortage of homes in this price range, he said.

Interest rates have declined in response to the cuts by the Federal Reserve, although recently the credit markets are not moving in sync with the Fed rate cuts, McCarty said. Most importantly, average home prices have been falling to a point where they are approaching the level they would have been at this time without the housing run-up, he said.

“We anticipate that by July home prices in many areas of Florida will be at or near bottoming out,” he said. “This should attract some buyers who have been waiting on the sidelines for prices to stabilize, assuming they can quality for a loan.”

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 February was conducted from 408 responses.

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.