Bullish haves, bearish have-nots
By ROBERT TRIGAUX
Published June 1, 2005
Are consumers more or less confident about their economic health than they were a year ago? How confident will they be a year, or five years, from now?
In an economy increasingly split between haves and have-nots, the answers can vary from A to Z.
A burst of consumer confidence surveys appeared Tuesday with mixed results. A prominent business research group known as the Conference Board said its consumer confidence index climbed in May, indicating a more bullish outlook by U.S. consumers in the past month. Yet a separate survey from the University of Michigan consumer sentiment index showed confidence slipped in May for the fifth straight month, the longest series of declines since 2002.
And at the University of Florida, the monthly consumer confidence index of Floridians on Tuesday showed a slight drop in May to 89 from 91 in April, and a further drop from the 12-month high of 97 in February. (The index was set at 100 in 1966.)
Which do you believe?
The surveys seem to deliver conflicting responses. But they really asked consumers different questions, prompting different answers. The Conference Board wants to know more about jobs and job availability, part of the economy that has been on the upswing in recent months. The Michigan and Florida surveys do not ask consumers about work opportunities, but do query them about their personal financial situations.
So, if we combine these survey findings, consumers in May were more upbeat about job prospects but felt less sure about their personal finances.
And among Floridians, how much (or little) they earn is playing a greater role in their confidence about the economy ahead.
The University of Florida survey each month poses questions to households with incomes above $30,000 and less than $30,000. The views of those households continue to diverge as lower-income households struggle to deal with higher gas prices and rising interest rates, said survey director Chris McCarty at UF's Bureau of Economic and Business Research in Gainesville.
"As has been the pattern for some time now, things seem to be getting better for those with higher incomes than for the majority of people with moderate to low incomes," he said.
On one survey question - What's your personal financial situation now compared to a year ago? - lower-income households expressed less confidence (61 on the index) about where they are than where they were a year ago. But higher-income households were far more confident (100 on the index) than in May 2004. That's an index difference last month between the two household brackets of 39 points, a wider gap than usual.
In May 2004, when the UF survey asked Floridians their expectations of national economic conditions over the next five years, lower-income household responses registered an index of 80, while richer households responded with a far more confident 97 on the index.
But in May of this year, when asked the very same question, lower-income households were far less confident. They responded with an index of 67. That's down 13 points in one year. Responses from households with income greater than $30,000 also fell from a year ago, but only 7 points to an index of 90.
Gas prices are high enough, and likely to remain so, to force lower-income households to make tough cost choices, McCarty suggests.
Do they take that weekend drive, or skip it to save on gas for getting to work? Do they drive to their favorite restaurant, or pick one closer to home?
The effect is real. Wal-Mart has blamed its disappointing first-quarter results on higher gas prices sapping the buying power of its customers.
Executives at Tampa's Outback Steakhouse restaurant chain point to high gas prices behind a dip in patrons eating at its Midwest locations.
Higher interest rates, an economic reality younger households accustomed to cheap credit have not experienced, also dampens confidence.
"Rising interest rates will continue to affect many households that were able to enjoy a higher standard of living when the cost of borrowing money was cheap," McCarty said.
Households with little savings and heavy debts tied to rising rates, those with credit cards and adjustable-rate mortgages, may suffer a rude awakening if the Federal Reserve continues to push rates higher.
"Increasingly, people have no financial cushion at all," McCarty said. "And the proportion of people in that position has grown."
Consumer confidence levels in Florida are like the Goldilocks story: Not too hot, and not too cold.
"I imagine consumer confidence will remain where it is, or lower, for the next few months," McCarty predicted.
For the near term, look for any uptick in confidence in jobs to be neutralized by worries over high-priced gas and credit.
Robert Trigaux can be reached at trigaux@sptimes.com or 727 893-8405.