US consumer confidence suffers its worst fall since the Gulf war crisis

Economy
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The Independent Online

Confidence among Americans has suffered its worst fall since Iraq invaded Kuwait 10 years ago, according to data published yesterday that confirmed optimism has crumpled in the wake of the terrorist attacks on New York and Washington.

Confidence among Americans has suffered its worst fall since Iraq invaded Kuwait 10 years ago, according to data published yesterday that confirmed optimism has crumpled in the wake of the terrorist attacks on New York and Washington.

This is the first piece of economic news to be published that covers the period after 11 September. The slump in confidence, which was far worse than expected, came as finance ministers of the Group of Seven nations said they would meet in Washington month, as revealed by The Independent last week.

The index of household confidence produced by the Conference Board, a private research group, fell to a five-year low of 97.6 in September from August's 114.0. Economists had forecast a modest drop to 105. This makes it the largest one-month drop in confidence since October 1990. As fears of war mounted and the oil price spiked it took three years for confidence to regain its pre-crisis levels.

The index could fall even further next month as almost nine out of every 10 responses came in before the attacks.

The Conference Board said the downturn was being driven by wider economic factors. "The further erosion in confidence continues to be fuelled by deteriorating labour market conditions and weakening business conditions," it said. Lynn Franco, director of its consumer research centre, warned of worse conditions to come. "As the economic ramifications continue to reverberate and the number of lay-offs continue to rise, the economy faces tougher times ahead," she said.

"While consumers have managed to keep the US out of a recession for several years now, that soon may no longer be the case."

Wall Street took the news in its stride. By midday the Dow Jones was up 1 per cent, following Monday's 350-point surge. In London, the FTSE 100 closed up 1.1 per cent at 4,663.4.

However, the corporate gloom continued unabated. Alitalia, Italy's flag-carrier airline, announced 2,500 job cuts and said it was selling 12 planes and freezing orders in the wake of the terrorist attacks. EMI, the UK entertainment group said it expected a 20 per cent fall in full-year profit amid a "marked deterioration" in the music market.

Meanwhile the tally of companies cancelling mergers and acquisitions because of falling stock markets continued to rise. Twenty takeovers worth £10bn have been spiked in the last two weeks, according to research by Bloomberg News.

Yesterday, Vinci withdrew a £516m bid for airport operator TBI. FelCor Lodging Trust has pulled a $2.7bn offer for hotel management company Meri-Star Hospitality, while Cesky Telekom scrapped a $1.5bn bid for Eurotel. The value of deals in the third quarter slid 36 per cent to $405bn – the worst since 1997, when sliding Asian currencies threatened to push the world economy into recession.

Against a backdrop of mounting concern over a global recession, G7 finance ministers yesterday issued an upbeat statement after holding an impromptu telephone conference. They said that the terrorist attacks had delayed the recovery in the US economy that they said was already under way.

"However, our economic policies and fundamentals remain strong and we expect a near-term return to sustained economic growth and stable financial markets," they said.

Gordon Brown later saidthere had been "decisive action" in the form of interest rate cuts. The Chancellor added that consumer and government spending in the UK was still rising, which should support growth.

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