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US consumer confidence falls to lowest level in over two years

Image: Consumers Spent More Than Expected During Month Of July
Shoppers walk through an outdoor shopping mall in Los Angeles, Calif. U.S. consumer confidence crumbled in August, dropping to its lowest level since April 2009.Kevork Djansezian / Getty Images
/ Source: news services

U.S. consumer confidence crumbled in August to its lowest level in more than two years as the fallout from political wrangling over a budget deal took its toll.

The Conference Board, an industry group, said its index of consumer attitudes sank to 44.5 from a downwardly revised 59.2 the month before. The index was well off a poll of economists by Reuters for a reading of 52.0.

The index was at the lowest level since April 2009, the report said. July was originally reported as 59.5.

Consumers' outlook also deteriorated sharply as the expectations index plunged to 51.9 from 74.9. The assessment of consumers' present situation fared better with the index slipping to 33.3 from 35.7.

Consumers have faced many hurdles recently, including the debate surrounding the debt ceiling, the downgrade of the U.S. credit rating by Standard & Poor's, volatility in financial markets and increased fears the economy is heading for another recession.

"A contributing factor may have been the debt ceiling discussions since the decline in confidence was well underway before the S&P downgrade," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

Gennadiy Goldberg, fixed income analyst at 4Cast Ltd. in New York, said the confidence data point to a “vicious cycle” for the economy.

“Weaker consumer confidence implies that consumers aren't going to spending the near future and obviously that's going to filter back into the economy and weaken things that have already been weakening,” Goldberg said.

Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, N.C., said U.S. consumers are in a funk right now.

“Certainly folks are concerned about business conditions in general and the outlook for employment and income into the future, and that is where we saw most of the weakness,” he said. 

A drop in confidence is a worrisome sign for the nation's retailers, who depend on the back-to-school shopping season for up to 25 percent of their annual revenue. Economists watch the numbers closely because consumer spending accounts for 70 percent of U.S. economic activity.