US consumer confidence takes dive

Confidence among United States consumers fell in February to the lowest level in 10 months, a sign that concern about job prospects may hold back the spending needed to sustain the recovery.

The Conference Board's confidence index slumped to 46, below the lowest forecast in a Bloomberg News survey of economists, from 56.5 in January, a report from the New York private research group showed yesterday. A separate report showed home prices rose for a seventh month.

Stocks fell and Treasuries gained after the confidence report also showed attitudes about current conditions fell to the lowest level in 27 years and the outlook for wages dimmed.

The survey reinforces expectations Federal Reserve chairman Ben Bernanke will repeat the central bank's pledge to keep interest rates low for "an extended period" in testimony to Congress today.

"Consumer spending is going to disappoint throughout most of the year," said Steven Ricchiuto, chief economist at Mizuho Securities USA in New York. The economy "may not be out of the woods".

Economists forecast the confidence index would decrease to 55 from a previously reported 55.9 January reading, according to the median of 68 projections in the Bloomberg survey.

Chris Low, chief economist at FTN Financial in New York, said the larger-than-expected decline might have also reflected a drop in stock values. The S&P 500 fell 8 per cent to a closing low this month of 1056.74 on February 8 from a January high of 1150.23.

The S&P/Case-Shiller home-price index of 20 US cities increased 0.3 per cent. Compared with December 2008, prices fell 3.1 per cent, the smallest year-over-year decline since May 2007.

"There's no precedent for such a sharp turnaround in the data that we have going back to 1987," said Robert Shiller, the co-founder of theindex.

He said the eventual end to the Fed's purchase of mortgage-backed securities and expectations for a higher federal funds rate made it difficult to forecast home prices.

The Conference Board's measure of present conditions decreased to 19.4, the lowest since February 1983, from 25.2.

The share of consumers saying jobs are plentiful fell to 3.6 per cent from 4.4 per cent, according to the Conference Board.

The proportion of people saying jobs are hard to get increased to 47.7 per cent from 46.5 per cent.

"The vicissitudes of the political situation in Washington cannot be helping," said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts.

"There has been a lot of sizzle on job stimulus proposals but no meat is coming out of the sausage factory. Now the focus seems to be moving back to the healthcare reform issue."

The gauge of expectations for the next six months decreased to 63.8, the lowest since July 2009, from 77.3 the month before.

The proportion of people expecting their incomes to increase over the next six months declined to 9.5 per cent from 11 per cent. The share expecting more jobs in the next six months fell to 13.4 per cent from 15.8 per cent.

Unemployment is expected to average 9.8 per cent this year, according to the median forecast of a Bloomberg survey taken early this month.

The world's largest economy will expand 3 per cent this year after shrinking 2.4 per cent in 2009, according to the median forecast of economists.

- BLOOMBERG