US consumer confidence has slumped to 'recession' levels

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Consumer confidence in the United States has slumped to levels usually associated with the onset of a recession.

The Reuters/University of Michigan Survey of Consumers index of sentiment for this month dropped to its lowest reading since February 1992. With a 1985 base of 100, yesterday's figure of 69.6 was well below the 78.4 level reached at the end of January and was also shy of analysts' expectations.

Consumer spending accounts for around 70 per cent of the US economy and, as the world's "consumer of first and last resort" Americans' buying habits affect every major economy. American consumers spent about $9.5 trillion (£4.5 trillion) last year, while Chinese could only manage $1 trillion and the Indians $650bn. China, often cited as being "decoupled" from the US economy derives 8 per cent of its national income directly from US consumption.

American households are seeing the worst squeeze on their disposable income since 1980, with higher fuel prices, food bills and the cost of servicing their record debts proving an increasingly heavy burden. The amount Americans must spend each month on debt service, housing, medical care, food and energy rose to 66.9 per cent of their spending in December, the highest since record-keeping began in 1980, according to figures supplied by Bloomberg.

The gloomy picture was confirmed by the latest news on American industrial output. Production rose by just 0.1 per cent for a second straight month, matching economists' forecasts, the Federal Reserve reported yesterday, with production largely supported by the cold weather, which increased demand for energy. Manufacturing, which accounts for four-fifths of US industrial production, was unchanged from December after a 0.2 per cent gain. The figures pushed stocks lower on Wall Street, though only marginally as most analysts took the view that the bad news would encourage the Federal Reserve to continue its aggressive policy of cutting interest rates. The Fed's chairman Ben Bernanke said last week that he was prepared to take "timely" action to aid the economy.

Even so, the verdict of economists viewing events was unanimously despairing. Brian Gendreau, an investment strategist at ING in New York said: "These figures reflect how consumers are heavily influenced by the uncertainties with regards to the economy, gasoline prices, upcoming elections – everything. This is a pretty bad, pretty dismal number. We look at 14 indicators of recession, and 10 out of the 14 are signalling that we are either about to go in to a recession or are in one already."