Finance worries cause Florida consumer confidence to drop

October 28, 2008

GAINESVILLE, Fla. — Consumer confidence among Floridians plummeted eights points to 60 in October, reflecting people’s concerns about the volatility of financial markets and portending a shaky holiday season for retailers, a new University of Florida study finds.

“Florida consumers are becoming increasingly pessimistic about their ability to maintain financial stability,” said Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research. “There were record declines among the components measuring perceptions of personal finances and whether it is a good time to buy. These two components tend to be bellwethers for consumer spending.”

The results are preliminary because they include only those surveys conducted through Oct. 22. McCarty said he expects the month’s final consumer confidence reading, which will be based on an entire month of surveys, to be at or below the all-time low index of 59 from June.

All five of the components fell, some to new record lows. The biggest drop was in the component measuring whether it is a good time to buy big-ticket items, which plunged 14 points to 52, its all-time low. Expectations about U.S. economic conditions over the next year tumbled 11 points to 54, while perceptions of personal finances now compared with a year ago dropped nine points to 40, its lowest level since the Florida Consumer Confidence Report began in 1983. Perceptions of personal finances a year from now fell four points to 81 and expectations about U.S. economic conditions over the next five years slipped two points to 75.

“Based on the current numbers, it is likely to be a very rocky holiday season for retailers,” McCarty said. “Retail sales have been negative for the past three months and are likely to continue to deteriorate. Leading the declines are auto dealers, followed by home furnishing stores and clothing and accessories.”

Even before September’s financial crisis, the use of consumer credit was not growing because people were pulling back, either because they needed to or were not able to get loans from the banks, he said.

As is characteristic of most recessions, consumers are putting off discretionary purchases and holding onto their cash, McCarty said. Ultimately the pent-up demand from this pullback will help pull the economy out of recession, he said.

“The question on everyone’s mind is how bad can this get and how long can it go on?” he said. “We are clearly not going to have a 2001-style recession, which was mild by any measure. Hopefully, we are looking at something like the recession of 1990-91, which, although more severe than 2001, was much less worse than the recession of the 1970s.”

Most economists expect problems with the economy to persist at least through next year and possibly into 2010, McCarty said. Although there are signs of recovery in the credit markets, uncertainty about the stability of home prices remain a problem, he said.

“I expect home prices in most of Florida to hit their lowest level before the end of the year, although some areas may take a bit longer,” 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 October was conducted from 372 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.