Consumer Confidence in U.S. Collapses to Record Low as Unemployment Soars By Bob Willis http://www.bloomberg.com/apps/news?pid=20601087&sid=aL6kjgG.mveU&refer=home Feb. 24 (Bloomberg) -- Confidence among U.S. consumers plunged to a record low in February, signaling spending will slump further as unemployment soars. The Conference Boardâs index declined more than forecast to 25 this month, the lowest level since data began in 1967, from a January reading of 37.4, the New York-based research group said today. Another report showed the drop in home values accelerated in December. Retailers such as Macyâs Inc. and J.C. Penney Co. are likely to keep hurting as foreclosures soar and job losses mount. President Barack Obama is trying to mend the breach in confidence with a stimulus plan that he says will save or create more than three million jobs, while Federal Reserve Chairman Ben S. Bernanke today said the economy is in a âsevereâ contraction. âJust when you think confidence canât go any lower, the bottom falls out of it, and you can be sure the rest of the economy is not far behind,â said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, which had the closest forecast at 26.7. âIf consumersâ spending matches their flagging spirits, this recession is going longer and deeper.â Economists forecast confidence would fall to 35, from a previously reported 37.7 for January, according to the median of 72 projections in a Bloomberg News survey. Estimates ranged from 26.7 to 42. Home Prices Home prices in 20 metropolitan areas fell 18.5 percent in December from a year earlier, the biggest drop since records began in 2001, according to S&P/Case-Shiller. All the regions were down during the period, led by a 34 percent slump in Phoenix and a 33 percent slide in Las Vegas. âStrong government actionâ is critical to stabilize markets and financial firms, Bernanke said today during testimony before Congress. January forecasts by Fed officials suggest that âa full recovery of the economy from the current recession is likely to take more than two or three years,â Bernanke told lawmakers. Stocks trimmed gains following the chairmanâs remarks and the report showing confidence sank, while Treasury securities climbed. The Standard & Poorâs 500 index was up 0.3 percent at 745.52 at 10:18 a.m. in New York. The yield on the benchmark 10- year note fell to 2.71 percent from 2.76 percent at yesterdayâs close. Fewer Jobs Todayâs confidence survey showed the share of consumers who said jobs are plentiful slumped to 4.4 percent from 7.1 percent last month. The proportion of people who said jobs are hard to get increased to 47.8 percent, the highest level since 1992. Americans also viewed their financial well-being in future months with more pessimism. The Conference Boardâs gauge of the outlook for the next six months decreased to 27.5, also the lowest on record, from 42.5 in January. The share of respondents expecting their incomes to rise over the next six months dropped to 7.6 percent from 10.3 percent. The measure of present conditions dropped to 21.2 from 29.7. âNot only do consumers feel overall economic conditions have grown more dire, but just as disconcerting, they anticipate no improvement in conditions over the next six months,â Lynn Franco, director of the Conference Boardâs consumer research center, said in a statement. Housing Crash The real-estate slump at the center of the U.S.-led global downturn shows no sign of letting up as lenders tighten borrowing rules during the worst credit crisis in seven decades. New-home sales continue to fall and builders are cutting additional projects. To cushion the downturn, Obama on Feb. 17 signed into law a $787 billion recovery bill that includes tax relief, infrastructure spending and aid to distressed states aimed at creating or saving 3.5 million jobs. A day later, he unveiled a $275 billion plan to curb foreclosures and halt the slide in home prices. Even with lending rates near record lows and the government moving to prop up housing, foreclosures this year may reach about 3.1 million, surpassing last yearâs record 2.7 million, Mark Zandi, chief economist at Moodyâs Economy.com in West Chester, Pennsylvania, said last week. The drop in home values is contributing to the decline in spending because home equity was a major source of cash for purchases of expensive items like autos during the housing and credit booms. Auto Sales U.S. sales of cars and light trucks plunged to a 9.6 million annual rate in January, the lowest level since 1982, according to industry data. General Motors Corp. said this month it will cut another 47,000 workers from payrolls worldwide. Declining stock prices are also hurting household wealth and making Americans gloomy. The Standard & Poorâs 500 Index last week posted its biggest drop in three months on concern the government will have to nationalize banks. Through Feb. 20, the index was down 6.8 percent for the month, extending its losses since last May to 45 percent. Retailers are bracing for more bad news. Macyâs, the second- largest U.S. department-store company, this month said it was eliminating 7,000 jobs, while J.C. Penney, the third-largest, last week forecast its first quarterly loss in almost five years. âThe customerâs very tentative,â J.C. Penneyâs Chief Executive Officer Myron Ullman said on a conference call with investors. âTheyâre buying what they need and theyâre being very smart about how they spend their money.â After contracting for the last six months of 2008, consumer spending will keep shrinking for the first six months of this year, according to economists surveyed by Bloomberg this month. It would be the first 12-month drop in the postwar era. The recession that began in December 2007 will extend at least through the first half of 2009, with unemployment rising to 8.8 percent by year-end, according to the forecasts. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net Last Updated: February 24, 2009 10:27 EST