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Consumer confidence plunged in early November to the lowest level since Hurricane Katrina battered the Gulf Coast and sent oil prices soaring in 2005.
The RBC Cash Index showed consumer confidence fell to a reading of 64 this month, down sharply from an early October reading of 80.6, when consumer sentiment was on the upswing as the stock market stabilized temporarily following a turbulent August.
However, renewed market turbulence, oil prices threatening to hit $100 a barrel and a continued steep slump in housing combined to jolt consumer confidence in the latest survey done by the international polling firm Ipsos.
The 64 reading was the lowest point for the monthly survey since it hit 61.5 in September 2005, a month when energy prices soared, reflecting the shutdown of Gulf Coast refineries after Katrina struck.
The RBC Cash Index was in line with other surveys of consumer confidence, including the Conference Board’s consumer sentiment survey which has also dropped to the lowest level since the fall of 2005.
Economists said conditions are being exacerbated by renewed problems in financial markets as investors have become worried by a string of huge losses reported by some of America’s largest corporations, including General Motors, Merill Lynch and Citcorp. These sobering earnings reports are raising concerns about how many more billions of dollars in losses have yet to be announced.
There also are worries about the fall in the value of the dollar to record lows, which makes imports more expensive for U.S. consumers, and a big run-up in oil prices, which briefly traded above $98 a barrel this week. Since August, crude oil prices have soared by 42 percent.
The rise in oil prices, blamed in part on the weak dollar and increased Middle East tensions, has pushed gasoline prices above $3 a gallon at the pump.
“We have a perfect storm of negative factors affecting the consumer right now,” said David Jones, chief economist at DMJ Advisors, a Denver consulting firm. “We have higher energy prices, declining home prices and a crisis-related tightening of credit.”
Economists are worried that a deepening slump in housing, which has dampened sales and prices, could intensify in coming months because of continuing credit problems.
Many lenders, faced with soaring defaults on subprime mortgages, loans made to borrowers with weaker credit, have tightened their standards, making it harder for prospective buyers to qualify for a loan.
The housing crisis is coming after a five-year boom that saw sales set a string of records and home prices rise at double-digit rates in the hottest markets. With home prices now falling in many parts of the country, the worry is that consumers, feeling less wealthy as they see their biggest asset shrink in value, will start to pull back on their spending. Such a drop would be magnified by the surge in energy bills, which would leave consumers with less to spend on other items.
That is making for a bleak outlook for the upcoming holiday shopping season. The nation’s big chain stores Thursday reported disappointing sales results for October, setting an un-festive tone for the all-important Christmas shopping season. Consumer spending is closely watched because it accounts for two-thirds of total economic activity.
The government reported last week that the overall economy grew at a solid 3.9 percent rate in the July-September quarter. But economists believe that pace will skid to a much weaker 1.5 percent growth rate in the current quarter and slow even farther in the first three months next year, the point many of them believe will be the time of maximum danger for a possible recession.
Federal Reserve Chairman Ben Bernanke told Congress on Thursday that Fed officials believe growth will “slow noticeably” in the current quarter and remain sluggish in the first part of next year before staging a rebound.
The economic weakness has taken a toll on President Bush’s approval ratings, which fell in November to a record low of 32 percent for his handling of the economy, according to a separate AP-Ipsos poll.
The RBC Cash Index showed weakness in all categories from expectations about the future, job security, current conditions and feelings about investments. The overall index is benchmarked to a reading of 100 in January 2002, when Ipsos started the survey.
The consumer confidence index for November was based on responses from 1,001 adults surveyed Monday through Wednesday. Results have a margin of sampling error of plus or minus 3.1 percentage points.