Confidence drop raises fears of spending collapse

WASHINGTON - US consumer confidence fell to the lowest level on record in October as stocks plunged and banks shut off credit, raising the risk spending will collapse.

The Conference Board's confidence index tumbled to 38, lower than forecast and the worst reading since monthly records began in 1967, the New York research group said yesterday. A separate report showed home values continued to drop in August.

Stocks initially pared gains on the outlook for consumer spending, which accounts for more than two-thirds of the economy, before surging late in the day. The report strengthened expectations that the Federal Reserve will lower interest rates again after a likely reduction today.

"It'll be a prolonged recession," said Carl Riccadonna, a senior economist at Deutsche Bank Securities Inc. in New York. "We're looking at a very sharp pullback in consumer spending. As go consumers, so goes the broader economy."

Whirlpool Corp., the world's largest appliance maker, said yesterday it will cut 5,000 jobs and forecast lower annual profit. Royal Caribbean Cruises Ltd., the world's second largest cruise operator, forecast profit that trailed some analysts' estimates because of a "significant deterioration" in bookings.

The confidence report underscored voter discontent with the country's direction heading into the Nov. 4 presidential election. A majority of voters think Illinois Senator Barack Obama, the Democrat, will be better able to handle the economic turmoil than Republican rival John McCain, according to polls.

Consumer confidence was projected to drop to 52, according to the median estimate in a Bloomberg News survey of 66 economists. Forecasts ranged from 45 to 56.6. September's reading was revised up to 61.4 from an originally reported 59.8.

The 23.4-point drop in confidence this month was the third-biggest on record, trailing two plunges in the early 1970s linked to oil shocks. Measures on current conditions and expectations both declined.

Home prices in 20 US metropolitan areas dropped 16.6 percent in August from the same month in 2007, the fastest pace since year-over-year records began in 2001, a report from S&P/Case-Shiller yesterday showed. For a fifth consecutive month, all areas registered a decrease in prices from a year earlier.

The housing slump is likely to extend well into a fourth year as foreclosures put more properties on the market and drive down prices even more.

The slump in spending may be even bigger this quarter as consumers retrench. The International Council of Shopping Centers predicts the November-December holiday season, which brings in more than one-third of some retailers' annual sales, will be the weakest since 2002.