Florida consumer confidence index falls to lowest rate in its history

June 24, 2008

GAINESVILLE, Fla. — Higher gas and food prices, continued declines in housing prices and last month’s large increase in unemployment caused Florida’s consumer confidence to plummet six points in June to 57, its all-time low record in the index’s 25-year history, a new University of Florida study finds.

The index for May was revised from its preliminary figure of 65 to 63, making it one point below the previous record low of 64 set in December 1991, said Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research.

All five of this month’s index components fell, with three of the components reaching lows not seen since the Florida Consumer Confidence report began in 1983, McCarty said. The largest drop was in perceptions of whether it is a good time to buy big ticket items, which fell 17 points to 47, far below its previous record low of 64. The other two components to drop to new lows were perceptions of personal finances now compared with a year ago, which fell five points to 50, and perceptions of expected personal finances a year from now, which fell four points to 73.

The remaining two components were perceptions of U.S. economic conditions over the next year, which fell one point to 50, and perceptions of U.S. economic conditions over the next five years, which fell three points to 67.

“These are by far the worst readings we have ever seen,” McCarty said. “There is no other way to interpret these numbers other than to say that Florida consumers are hurting. Based on these results, I would have to predict consumer spending in Florida to pull back dramatically in the coming months.”

Of particular concern is that while it is fairly common for dramatic but temporary declines in the two components measuring perceptions of U.S. economic conditions, the three indexes that measure perceptions about personal finances and buying big-ticket items, all of which reached historic lows this month, are usually fairly stable, he said.

The bleak outlook for consumers in the near term is based on several factors, McCarty said.

Although rebate checks temporarily boosted retail sales, much of that money is being spent on increases in energy and food prices, McCarty said. Another setback is that Florida unemployment rose in May by half a percentage point, which is considered a very large increase historically, he said.

“The current economic decline began with housing and in many ways it will end with housing,” he said. “Housing prices have continued to decline and have yet to stabilize, although there are some signs that prices in some areas are getting near the bottom.”

A large part of the problem in the financial markets is due to uncertainty about the true value of homes, said McCarty, who predicts that once prices stabilize, banks, investors and potential buyers will have confidence in the financial system and will be willing to engage in responsible borrowing and lending behavior.

“Until that happens, Florida state and local government will suffer from low tax revenues,” he said.

As of April, median single-family home prices in Florida were down just under 23 percent from their high in June 2006, McCarty said.

“We expect further declines for May, June and July, with housing prices hitting their low soon thereafter,” he said.

McCarty said he does not expect Florida’s consumer confidence to decline much more in the near term, and believes it will actually improve once gas prices decline. Given the low likelihood that the Federal Reserve will lower interest rates further and that it may actually increase rates, there may soon be pressure on gas prices to come down, 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 June was conducted from 360 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. Based on the University of Michigan method, 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.