US consumer confidence fell in January to its lowest level in more than four years, bolstering the case for an aggressive interest rate cut to ward off a recession.
The Conference Board, a New York-based research group, said today its monthly index fell for a fourth consecutive month to 114.4 - its lowest level since December 1996 and well below the 124.2 economists had forecast. The index dropped sharply from an upwardly-revised 128.6 in December.
Most notably, the expectations index, a gauge of sentiment about the US economy's near-term course, plunged to 77.0 from an upwardly-revised 96.9 in December.
"Consumers' increasing pessimism about the short-term outlook has sent the Expectations Index into territory normally seen prior to a recession," said Ms Lynn Franco, director of the firm's consumer research center.
The Federal Reserve is expected to cut interest rates tomorrow by a half-point for the second time this month. Fed Chairman Mr Alan Greenspan has identified consumer confidence as key to determining if a rapidly slowing economy will unravel further. Consumer spending accounts for two-thirds of US economic activity.
The Conference Board noted, however, that consumers' views on current conditions had not yet deteriorated to a point that suggested outright recession, echoing comments from Mr Greenspan last week.
A second leading gauge of consumer sentiment issued by the University of Michigan earlier this month showed that the attitudes of consumers deteriorated to their worst level in four and a half years.
The two-month fall in the Michigan index was the third largest on record and recalled similar steep declines that preceded the US economic recessions of the early 1990s and 1980s.
Reuters