Florida’s consumer confidence declines as economic troubles sink in

GAINESVILLE, Fla. – Feb. 25, 2009 – Consumer confidence among Floridians fell three points to 63 in February as hopes for a quick fix to the nation’s economic crisis faded, says a University of Florida researcher.

“As expected, consumer confidence declined in February as the novelty of a new administration met with the sustained reality of a faltering economy,” says Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research. “Consumers are reporting severe financial strain and are bracing for the long recession that most economists have predicted.”

February’s index of 63 is four points above the all-time low of 59. All five of the components that make up the index dropped. Expectations of U.S. economic conditions over the next five years fell six points to 69, while expectations of U.S. economic conditions over the next year fell four points to 51. Expectations of personal finances a year from now fell three points to 80, while perceptions of personal finances now compared with a year ago fell one point to 42. Perceptions of whether it is a good time to buy big-ticket items fell one point to 73.

“We saw a temporary increase to confidence in December and January that seems to have been related to optimism about the effectiveness of federal intervention into the economy, and perhaps more importantly, the change to a new administration,” McCarty says. “It is now clear that neither of these will result in a quick fix to the economy.”

Unlike previous government interventions, though, the recently passed stimulus package offers a lot to everyday consumers, he said.

Much of the money is earmarked for health insurance and extended unemployment benefits for those who were laid off, McCarty says. There are tax cuts, though they will be realized over time rather than in a single stimulus check. The Obama administration has proposed a new homeowner affordability and stability plan, which includes relief for troubled homeowners.

“This (housing) plan may end up being one of the big bonuses for Florida, where housing sales have been extremely weak,” McCarty says. “A proposed $8,000 tax rebate for first-time homebuyers may stimulate those who are on the fence about committing to buying a house.”

With Florida median home prices now at 2004 levels, the extra rebate makes home purchases attractive for those who qualify. Increased sales will help stabilize home prices and, perhaps more importantly, establish the value of problematic mortgage-related assets being held by banks.

In addition to the recently passed $787 billion stimulus package, the federal government has invested trillions to support ailing banks in an effort to bolster domestic and international financial systems, McCarty says. “As job losses in Florida and elsewhere around the country continue to rise, consumers do not see how those investments benefit them.”

Many financial institutions have survived because of government intervention, but they are cautious about lending, given the write-downs they took on defaulted mortgage loans, McCarty says. Consumers themselves are cautious about taking out loans in an environment where job security is questionable.

McCarty predicts that consumer confidence will remain below 70 through 2009 as the underlying problems that led to the recession are worked out.

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 February was conducted from 413 responses. The index is benchmarked to 1966, so a value of 100 represents the same level of confidence for that year.

© 2009 FLORIDA ASSOCIATION OF REALTORS®

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