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University of Florida: Consumer Confidence Climbs Slightly, But Is Expected To Dip Again

GAINESVILLE, Fla. — Florida’s consumer confidence inched up one point to 79 in September but is likely to continue its downward trend in the coming months thanks to higher gas prices and an expansion of the housing downturn to other segments of the economy, a new University of Florida study finds.

“In the short run we expect things to get a bit worse before they improve and consumer confidence to decline,” said Chris McCarty, director of the Survey Research Center at UF’s Bureau of Economic and Business Research. “The obvious culprit is the effect of the now burst housing bubble. The argument that the effect of the declining housing market will be contained has now been proven incorrect. What was a surprise was the extent to which investment in the U.S. housing market had become a global phenomenon. Central banks around the world have discovered that they cannot insulate themselves from this problem.”

There are also some signs that consequences from the housing downturn are creeping into non-housing related employment, McCarty said. Employment has been the bright spot that had been keeping the economy afloat, he said.

Gas prices also are hurting consumer confidence and they are unlikely to improve anytime soon, McCarty said.

“Gas prices have risen in September, a time when they typically fall due to lower demand following the summer travel season,” he said. “Given the Federal Reserve’s dramatic cut in interest rates, the dollar will be lower with respect to other currencies, which will ultimately make gas more expensive.”

The Federal Reserve reduced its benchmark interest rate on Sept. 18 by an unexpectedly large one-half percentage point, to 4.75 percent from 5.25 percent.

“Some economists question whether it was wise for the Federal Reserve to lower interest rates so much,” McCarty said. “This may simply delay the inevitable, which is that the prices of some houses will have to decline to levels that more closely follow the trend.”

The slight rise in consumer confidence was due to increases in three of the five components that make up the index. Expectations about U.S. economic conditions over the next five years rose four points to 81, while expectations about U.S. economic conditions over the next year increased two points to 72. Perceptions of personal finances now compared to a year ago inched up one point to 73.

The only component of the index to decline was perceptions of whether it is a good time to buy big-ticket items, which fell two points to 83. Perceptions of personal finances a year from now remained unchanged at 88.

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 September was conducted from 423 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 the year. The value of the index is in comparing changes over time rather than looking at an isolated month.

Credits

Writer - Cathy Keen, ckeen@ufl.edu, 352-392-0186

Source - Chris McCarty, ufchris@ufl.edu, 352-392-2908

Source: University of Florida Press Release

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John Elwell - REALTOR

CENTURY 21

Bill Nye Realty, Inc.

813-783-4444

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Comment balloon 0 commentsJohn Elwell • September 26 2007 05:18PM

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