Global General

Special

Newsmaker

Asia Pacific

America

Middle East

Europe

Africa

US consumer confidence drops to all-time low

(Agencies)
Updated: 2008-12-31 10:29

NEW YORK -- Consumer confidence hit an all-time low in December, dropping further in the face of rising layoffs, in yet another sign that consumer spending is unlikely to pull the US out of a yearlong recession any time soon.

In this Dec. 23, 2008 file photo, Michael Moore, left, and James Carson hold a coffin outside the closed, GM Moraine Assembly plant in Dayton, Ohio. Wall Street is taking in stride a report that consumer confidence hit an all-time low in December as Americans, hearing news of thousands of layoffs, worried about their job security. [Agencies]

Consumers have been nervous about spending for months, putting off big-ticket purchases, forgoing new clothes and choosing store brands at the grocery store, all of which may make this the worst holiday season for retailers in decades.

The Consumer Confidence Index measured by the Conference Board, a private research group, fell to 38 in December from a revised 44.7 in November. That is its lowest point since the group began compiling the index in 1967, and below the previous low of 38.8 in October. Economists surveyed by Thomson Reuters had expected the index to rise incrementally to 45.

"Deepening job insecurity and falling asset prices are outweighing any optimism consumers may have derived from falling gas prices," said Dana Saporta, US economist at investment bank Dresdner Kleinwort.

The unemployment rate hit a 15-year high in November, and economists expect additional job losses in the first half of 2009. Those saying in the Conference Board survey that jobs are "hard to get" rose to 42 percent in December from 37.1 percent in November, when the unemployment rate stood at 6.7 percent.

Those claiming business conditions are "bad" increased to 46 percent in December from 40.6 percent in November. Consumer spending is likely to keep dropping well into next year, Saporta said, meaning the recession will last at least into the first half of 2009.

The conditions that began the recession persist, especially deflating home prices. A measure of October home prices dropped by the sharpest annual rate on record. The Standard & Poor's/Case-Shiller 20-city housing index fell by 18 percent from October 2007, the largest drop since its inception in 2000. The 10-city index tumbled 19.1 percent, its biggest decline in its 21-year history.

"The numbers are getting worse. And I think they will get quite a bit worse over the next two months because housing demand has plunged since the market went into turmoil," said Patrick Newport, an economist at IHS Global Insight.

The Federal Reserve said Tuesday it will begin purchasing up to $500 billion in mortgage-backed securities early next month in an effort to bolster the housing market. The Fed first announced that it would purchase the securities in late November but did not say when they would begin. The central bank will buy securities guaranteed by the government-backed home loan giants Fannie Mae, Freddie Mac and Ginnie Mae.

Consumers have been whipsawed by home prices, the deteriorating job market and shrinking nest eggs. According to preliminary data from SpendingPulse, which tracks purchases paid for by credit cards, checks or cash, retail sales fell between 5.5 and 8 percent during the holiday season compared with last year. Excluding auto and gas sales, they fell 2 to 4 percent.

Major retailers are expected to report sharply lower sales than last year when they release those figures January 8. Analysts expect a rash of store closings and bankruptcies from both retailers and their suppliers.

With credit tight and even steep discounts failing to spur spending from tapped-out consumers, economists are looking to government spending to restart the economy. Aides to President-elect Barack Obama are discussing a new stimulus package that could be as large as $775 billion.

Stocks rose despite the reading, taking heart after General Motors Corp.'s troubled financing arm received $5 billion of financing. The Dow Jones industrial average rose 184.46 to 8,668.39, while broader indexes also gained. The stock market has seen its worst year since Herbert Hoover was president, with the Dow down roughly 36 percent.

The Conference Board's Present Situation index, which measures how respondents feel about current business conditions and employment prospects, fell to 29.4 in December from 42.3 in November. It is now close to levels last seen after the 1990-1991 recession.

The Conference Board survey is based on a representative sample of 5,000 US households. The cutoff date for December's preliminary results was December 22.