US consumer confidence plunges to a two-year low
Outlook in Europe lowest since December 2008 as debt crisis fallout persists
CONFIDENCE among US consumers plunged in August to its lowest in more than two years following the country's loss of its top credit rating and heart-wrenching drops in major stock indexes.
The Conference Board, an industry group, said yesterday its index of consumer attitudes sank to 44.5 from a downwardly revised 59.2 the month before. Economists had expected a much less pronounced decline.
Meanwhile, European confidence in the economic outlook in August plunged the most since December 2008 as a persistent debt crisis roiled markets and clouded growth prospects across the 17-nation euro region.
An index of executive and consumer sentiment in the single-currency region fell to 98.3 from a revised 103 in July, the European Commission in Brussels said yesterday. That's the lowest since May 2010. Economists had forecast a decline to 100.2.
The euro area's economic prospects are deteriorating as national governments cut spending in a bid to narrow deficits and tackle the debt crisis.
Economic and Monetary Affairs Commissioner Olli Rehn has signalled that the EU may reduce its 2011 growth forecast from 1.6pc on concerns that financial turbulence could spill into the broader economy.
In America, concerns have grown that the US might be heading toward a new recession. Consumers' flagging confidence might lead them to shut their wallets, although retail sales data hasn't pointed in that direction yet.
"What we are effectively going through is a crisis of confidence," said Tom Porcelli, an economist at RBC Capital Markets in New York.
The US lost its AAA credit rating earlier this month following a drawn-out battle in Washington over spending that nearly led the country to default on its obligations.
US Treasuries prices extended gains yesterday on fears a pullback in consumer spending could trigger recession, while US stocks fell initially before paring losses in the afternoon. The dollar hit a session low against the yen. So far this year, data from industrial production to employment has been consistent with a slow-growth scenario rather than an outright contraction in economic output. "There is basically nothing for consumers to be confident about," said Gennadiy Goldberg, a fixed income analyst at 4CAST in New York.
Back in Europe, Daniel Hartmann, an economist at Zug, Swiss-based Bantleon Bank said: "The risk of recession in the euro area has clearly increased as demand from Asia is flagging and governments' efforts to cut fiscal deficits are curbing domestic consumption. I expect the indicator to decline further in the coming months."