Consumer confidence crumbles to 2-year low

NEW YORK Tue Aug 30, 2011 6:50pm EDT

A realtor sign is displayed near a house for sale in Phoenix, Arizona, January 4, 2011. REUTERS/Joshua Lott

A realtor sign is displayed near a house for sale in Phoenix, Arizona, January 4, 2011.

Credit: Reuters/Joshua Lott

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NEW YORK (Reuters) - Consumer confidence plunged in August to its lowest since the 2007-2009 recession, after a bruising battle over the budget slammed stock prices and pushed the nation to the brink of default.

Tuesday's data kept alive concerns the United States could slide back into recession, spurring investors to buy government bonds on bets the Federal Reserve would try harder to push down borrowing costs.

The private-sector Conference Board said its index of consumer attitudes sank to 44.5, from a downwardly revised 59.2 in July. The August reading was the weakest since April 2009, when the country still languished in recession, while the drop was the largest since October 2008.

"What we are effectively going through is a crisis of confidence," said Tom Porcelli, an economist at RBC Capital Markets in New York.

Economists had expected a much-less-pronounced decline.

Consumers' flagging confidence might lead them to shut their wallets, although retail sales data has not pointed in that direction yet.

So far, data from industrial production to employment have been consistent with a slow-growth scenario rather than an outright contraction in economic output. But economists are watching closely for signs of a fresh downturn and will focus sharply on a reading on employment in August on Friday.

"There is basically nothing for consumers to be confident about," said Gennadiy Goldberg, a fixed income analyst at 4CAST in New York.

Stock markets slid sharply in early August as investors were shaken by the politically contentious fight over cutting the U.S. budget and raising the nation's debt limit. Discouraged by the political process, Standard & Poor's stripped the nation of its top-notch AAA credit rating.

The consumer sentiment data weighed on stocks for most of Tuesday's session, although the Standard & Poor's 500 Index closed higher.

FED EYES STEPS TO SUPPORT RECOVERY

Worries over the economy led the Fed in early August to consider new steps to support growth, like tying the path of interest rates to a specific unemployment level, minutes of the central bank's August 9 meeting released on Tuesday showed.

At that meeting, the central bank decided to announce that it expected to hold rates near zero until at least mid-2013.

While that decision drew three dissents, the most in nearly 20 years, the minutes showed some officials wanted even bolder action. Chicago Federal Reserve Bank President Charles Evans made clear in an interview with CNBC that he would have preferred a stronger course of action.

The high level of joblessness is weighing on sentiment and holding the economy back. Friday's jobs report is expected to show the unemployment rate held at 9.1 percent in August.

The Conference Board data suggested things may be getting worse, not better, with an index gauging how difficult it is to find a job hitting its highest level since November 2009.

HOME PRICES WEAK

A separate report showed U.S. single-family home prices fell slightly in June, the latest sign the economy's recovery will not be able to count on help from the housing sector.

The S&P/Case-Shiller composite index of 20 metropolitan areas slipped 0.1 percent from the previous month on a seasonally adjusted basis. A Reuters poll of economists had expected prices to be unchanged.

Prices in the 20 cities fell 4.5 percent from a year ago, better than expectations of a 4.6 percent decline.

An excess supply of homes, ongoing foreclosures, tight credit and weak demand have kept the housing market on the ropes and helped to mute the broader economic recovery.

"Basically this is just more confirmation that housing is moving sideways," said Brian Jones, an economist at Societe Generale in New York.

(Additional reporting by Emily Flitter in New York and Pedro Nicolaci da Costa in Washington; Writing by Jason Lange in Washington; Editing by Neil Stempleman and James Dalgleish)

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Comments (17)
seattlesh wrote:
With real unemployment/under employment near 14%, with loans near impossible to obtain and all of the cash in the hands of the wealthy why would anyone expect a rebounding housing market.

Aug 30, 2011 10:50am EDT  --  Report as abuse
jrj90620 wrote:
Hopefully Americans are going to figure out that their infatuation with big govt has been their downfall.Govt can’t give everyone something for nothing.We are paying the price for all the wealth destroyed by inefficient,wasteful govt that encourages laziness and bad behavior, while punishing saving,investing and hard work.

Aug 30, 2011 11:03am EDT  --  Report as abuse
JoeDietz wrote:
Haha, one day the news outlets say things are great. The next day, they “crumble” again. Can we get news without the drama?

Well have a great day everyone, I’m off ot go buy some stuff.

Aug 30, 2011 11:19am EDT  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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