Florida consumer confidence drops to 19-month low

Record-high gas prices and a weak housing market caused consumer confidence in Florida to fall three points in May to 82, its lowest level since October 2005, according to a new University of Florida study released on May 29.

The source of the decline was broad-based, with all five of the index components registering pessimism. The biggest drop was in perceptions of whether it is a good time to buy big-ticket consumer items, such as appliances and cars, which fell six points to 91. Perceptions of personal finances now compared with a year ago fell four points to 79, while perceptions of personal finances a year from now fell two points to 91. Perceptions of U.S. economic conditions over the next year fell two points to 74, while perceptions of U.S. economic conditions over the next five years fell one point to 78.

“Consumers in Florida are growing much more pessimistic about the economy and their finances,” said Chris McCarty, director of the Survey Research Center at UF’s Bureau of Economic and Business Research, which conducts the survey. “A gallon of gas in Florida has risen more than 13 cents in the past week and 26 cents compared to the same time a year ago. Although it is typical for gas prices to increase as summer approaches, we are now at record highs.”

Although rising gas prices have hurt consumer confidence among low-income consumers – those living in households making less than $30,000 a year – for some time, the source of the drop this month is increased pessimism among upper-income households, McCarty said.

“Given increases in the stock market, the likely culprit is the very weak housing market here in Florida,” he said.

Nearly 70 percent of all real estate sales occur in the spring, but by nearly all measures, this has been a very weak real estate season with overall sales and price declines similar to what they would be during a recession, McCarty said.

“While there are a few real estate experts who think the fall in housing has bottomed out, most remain skeptical as one indicator after another shows the depth and breadth of the decline,” he said.

Retail sales were quite weak in April, with sales of building materials particularly hard hit as new home construction slowed dramatically, McCarty said. Also showing big drops were sales of clothing, cars and general merchandise, he said.

“While some of this decline is due to increased fuel costs, it almost certainly reflects problems in housing,” he said.

One of the biggest problems is declining home values, and with that, home equity, McCarty said. Home equity withdrawals have been a major source of consumer spending over the past few years, he said.

Many aspects of the housing decline have yet to play out, McCarty said. Besides construction workers, real estate agents and others directly involved in the construction and sale of housing, retailers and service industries are also affected by declining home equity.

“We must keep in mind that Florida is among a few states, such as California, that may experience serious effects from the problems in the real estate market,” he said. “People often consider vacations as discretionary spending, which could impact Florida as a primary vacation destination. There is also an impact on employers who cannot get employees to move here, or to transfer, because of problems buying or selling houses.”

Although many economists believe housing may be close to bottoming out, the consequences will be felt for at least another year or two, McCarty said.

“We expect consumer confidence to remain the same or continue to decline as gas prices and housing continue to negatively impact consumers,” he said. “If we see significant declines in the stock market in June, a further drop in consumer confidence is a virtual certainty.”

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 May was conducted from 413 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.