US consumer confidence crumbles to two-year low

Thursday, 1 September 2011 00:00 - - {{hitsCtrl.values.hits}}

NEW YORK: US consumer confidence plunged in August to its lowest since the 2007-2009 recession, after a bruising battle over the U.S. 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 U.S. 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 U.S. stocks for most of Tuesday’s session, although the Standard & Poor’s 500 Index closed higher.

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 Aug. 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.