Apparently, one of the things we can be confident about is a lack of confidence.
A one-two punch of record gas prices and rising personal debt helped pull down Florida's consumer confidence indicator in May to a record 16-year low, according to statistics released Tuesday by the University of Florida.
The gloomy numbers mirror another report Tuesday, this one from the Conference Board in New York, which said its Consumer Confidence Index dropped to 57.2, down from a revised 62.8 in April. Economists had expected a reading of 60.
The May Conference Board reading marks the fifth straight month of decline and is the lowest since the index registered 54.6 in October 1992 when the economy was coming out of a recession.
"It does not appear that the stimulus checks have done much for confidence so far," said Chris McCarty, director of UF's Survey Research Center at the Bureau of Economic and Business Research. "Last month I suggested that the checks might result in a temporary increase to consumer confidence in Florida. That would likely have showed up in one of the questions about personal finances. But those index components were essentially flat.
"Some of this is probably due to record gas prices and increasing debt obligations."
One of the reasons for the dramatic rise in gas prices is the increase in demand that accompanies the approaching summer vacation season, McCarty said. But the lowering of interest rates by the Federal Reserve Board is also a factor because it weakens the dollar against other currencies. That makes oil, which is priced in dollars, more expensive for Americans, he said.
In addition, speculators who have been expecting interest rate cuts by the Fed drive up the price of oil by entering into contracts anticipating higher prices, McCarty said. But because the Federal Reserve has indicated it is finished with cutting interest rates for now, that part of the equation may reverse, he said.
Consumer confidence in May actually rose for lower-income households and the elderly, but it is unclear why, McCarty said. While it may be the result of some people who filed their taxes earlier receiving stimulus checks, it could also relate to them having made adjustments for rising gas prices based on earlier increases or to the effect of falling housing prices on middle- and upper-income households, he said.
"Florida consumers are certainly in a tight spot," McCarty said. "Housing prices are still declining, lowering the equity consumers have in their homes. Worse is the confusion about when price declines will stop."
Although most economists foresee price declines extending into 2009, McCarty said he expects many Florida housing markets to bottom out by July based on price patterns so far. Once these declines stop, consumers and lenders will know what homes are worth, as will potential buyers, he said.
"This will dramatically improve circumstances in Florida, which is more dependent than other states on housing activity," he said. "However, significant increases in housing prices are years away."
Economists and the business community closely watch sentiment readings since consumer spending accounts for more than two-thirds of the nation's economic activity.
"Weakening business and job conditions coupled with growing pessimism about the short-term future have further depleted consumers' confidence in the overall state of the economy," Lynn Franco, director of the Conference Board's Consumer Research Center, said in a statement.
Franco said consumers' worries about inflation, fueled by increasing prices at the gas pump, are now at an "all-time high" and are likely to rise further in the months ahead. She added that based on consumers' outlook on the economy, she believes there's little likelihood of a quick turnaround.
Information from the Associated Press was used in this report.