U.S. consumer confidence sinks to record low

By Veronica Smith, AFP

WASHINGTON — U.S. consumer confidence plunged to a record low in October as consumers felt the bite of the credit crisis, a private firm said Tuesday, sounding alarms over the year-end holiday shopping season.

The Conference Board, a business research firm, said its consumer confidence index plummeted to 38.0, down from 61.4 in September.

Most analysts had expected a more modest decline to 52.0.

“The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence,” Lynn Franco, the Conference Board’s chief economist, said in a statement.

“This news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season,” she said.

The plunge in consumer confidence followed three consecutive months of modest gains. The research firm revised upward its September index to 61.4, from a prior estimate of 59.8.

The survey of 5,000 households ended on October 21, and came on top of fierce global market turmoil as a tightening credit squeeze brought lending to a virtual halt, prompting massive cash injections and financial rescues by governments.

It also occurred as consumers digested a series of extraordinary government moves to shore up the financial system, including a 700-billion-dollar bailout that was the biggest since the 1930s Great Depression.

A bellwether of consumer spending, which accounts for two-thirds of U.S. economic growth, confidence has waned as falling home values, rising unemployment, tightening credit and rising inflation fears have consumers tightening their belts.

“In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter,” Franco said.

“Looking ahead, consumers are extremely pessimistic, and a significantly larger proportion than last month foresees business and labor market conditions worsening,” she said.