US: consumer confidence hits record low in 40 years
As the US recession unfolds, new figures show consumer confidence continues to fall. "Consumer confidence fell from a reading of 61.4 in September to 38 this month – the lowest level since the index was established more than 40 years ago and well below economists’ expectations that it would drop to 52" Some expect the consumer confidence to fall even further.
By James Politi in Washington Published: October 28 2008 13:59 | Last updated: October 28 2008 15:34
US consumer confidence plummeted to its lowest level on record this month, as the deepening of the financial crisis made Americans suddenly much more pessimistic about their current situation and prospects. The release of the Conference Board index on Tuesday will bolster fears that US consumers are pulling back on spending in a big way heading into the critical holiday season, driving the economy into a deep and long-lasting recession. Consumer confidence fell from a reading of 61.4 in September to 38 this month – the lowest level since the index was established more than 40 years ago and well below economists’ expectations that it would drop to 52. The previous all-time low in the index was set in December 1974, when consumer confidence fell to a level of 43.2. “Consumer confidence didn’t so much descend in October as fall right out of the sky,” said Abiel Reinhart, economist at JPMorgan in New York. The drop in consumer confidence was all the more jarring because it came even as the price of petrol fell, removing what earlier this year was one of the biggest drains on the finances of US households. Most economists are predicting that consumption, which accounts for a large chunk of US gross domestic product, will shrink in the second half of 2008. Americans’ assessments of their “present situation” declined from 61.1 in September to 41.9 in October. Meanwhile, the “expectations” index collapsed from 61.5 in September to 35.5 this month. Views of the labour market also worsened, with the percentage of consumers saying jobs are “hard to get” rising to 37.2 per cent from 32.2 per cent, while those claiming jobs are “plentiful” decreased to 8.9 per cent from 12.6 per cent. The bleak report on consumer confidence came an hour after it emerged that US home prices suffered a record drop of 16.6 per cent over the year to August 2008 – slightly worse than the annual drop of 16.3 per cent in July.
Although the decline was in line with economists’ expectations, it brought the latest reminder of the depth of the troubles afflicting the US housing industry. On a monthly basis, price declines accelerated as well – with the 20-city index falling by 1 per cent compared with a 0.9 per cent drop the previous month.
“The downturn in residential real estate prices continued, with very few bright spots in the data,” said David Blitzer, chairman of the S&P index committee. Economists have been hoping that monthly price declines would slow, eventually paving the way for a moderation in price decreases on an annual level as well. But there are fears that the deepening of financial woes over the past month may delay any nascent recovery. The worst price declines on an annual basis were in Phoenix, where prices have fallen by 30.7 per cent since August 2007, and Las Vegas, where prices have fallen by 30.6 per cent over the same period.