Falling home prices and the rising cost of fuel and food helped push consumer confidence to the lowest level in two years, according to a monthly survey by Reuters and the University of Michigan.
The Index of Consumer Sentiment was 76.1 in the November 2007 survey, down from 80.9 in October and 92.1 a year ago.
That’s still above the level that might indicate an impending recession, but could mean growth in consumer spending will nearly grind to a halt in the closing months of 2007 and in
the first few months of 2008, said Richard Curtin, director of the Reuters/University of Michigan Surveys of Consumers.
“The engine of consumer spending is expected to sputter at the turn of the year but not stall, and slowly gain speed in the last half of 2008,” Curtain said.
The chance of a recession hinges on how low home prices ultimately sink and how far fuel prices climb, Curtin said in a press release.
He said media accounts of foreclosures have made consumers more sensitive to credit risks, and motivated them to reduce their debt and increase their savings.
Buying plans for homes, vehicles, and large household durables each fell in the November survey. View on buying conditions for household durables such as furniture, appliances, and home electronics, were the least favorable in 15 years.
“The current situation as well as in the early 1990’s are similar in that consumers were more apprehensive about their overall financial situation, especially given their debts and savings,” Curtain said.
Rising fuel and food prices seemed to have a greater impact on consumers with lower incomes. While 60 percent of those in the bottom third income bracket reported a worsening financial situation, only 22 percent of those in the top third said they were worse off.