GAINESVILLE, Fla. — The fallout from the ongoing housing crisis caused a four-point drop in Florida’s consumer confidence index to 70 this month, its lowest level in 16 years, a new University of Florida study reports.
“Consumer confidence in Florida reflects the same conditions we had during the recession of 1990-91,” said Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research. “Florida is almost certainly in a recession now, and the country is not far behind. Most economists agree that we are in for at least two quarters of very low growth.”
This month’s drop to its lowest level since December 1991 is due to declines in four of the five components that make up the index. The biggest drop was in consumers’ expectations about national economic conditions over the next year, which fell 10 points to 55, its lowest level since August 1992.
Two components fell five points. Perceptions of national economic conditions over the next five years sank to 74, and expectations about personal finances a year from now dipped to 82. Perceptions of whether it is a good time to buy big-ticket consumer items fell one point to 74. The only component to rise was perceptions of personal finances now compared with a year ago, which edged up one point to 65.
“There is still some possibility that recessionary conditions will remain localized to some states, such as Florida and California,” McCarty said, noting that the preliminary consumer confidence reading for the nation from the University of Michigan was up five points to 80, a full 10 points higher than Florida.
“Unfortunately, these states that are experiencing recession conditions make up a very large part of the total U.S. economy,” he said. “It is very possible that the effects of the housing crunch in these states may result in a recession for the entire country, if we aren’t in one already.”
The hope is that the economic stimulus package making its way through Congress will negate some of the effects of the housing crisis and its related effects on credit markets by at least temporarily getting consumers back in the stores, McCarty said.
“If consumers can continue to support the economy until exports and business investment increase, the recession may be more like 2001 than 1990-91,” he said.
The 2001 recession was mild compared with the 1990-91 downturn, which lasted three quarters and resulted in the loss of nearly 2 million jobs, he said.
“The worst case is a scenario like the 1970s when the country experienced two recessions with long-lasting effects,” 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 January was conducted from 533 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.
Writer - Cathy Keen
Source - Chris McCarty
Source: University of Florida Media Release
Comment from John Elwell: It will be interesting to see what effect, if any, the recent cuts in the average mortgage interest rates as reported by Freddie Mac, the 2 recent Federal Reserve interest rate cuts, and the Amendment 1 Property Tax reforms will have on consumer confidence. Hopefully, only positive ones.