Consumer sentiment index falls to year low amid housing slump

U.S. consumer sentiment fell further than expected in late October to its lowest level in more than a year as concerns about the housing slump darkened the economic outlook, according to a survey released Friday.

The Reuters/University of Michigan Surveys of Consumers said its late October figure on consumer sentiment was 80.9, down from the month’s preliminary reading of 82 and the final September reading of 83.4. It was the lowest reading since May 2006, when it was 79.1.

Economists polled by Reuters had expected the final October figure to remain unchanged from early in the month at 82.

Consumer sentiment is often seen as a proxy for future spending, which accounts for two-thirds of the U.S. economy.

The decline in sentiment was driven by eroding expectations about future economic conditions. The gauge that measures these expectations dropped to 70.1 from the preliminary reading of 71.6 and September’s 74.1 to its lowest in a year, the survey said.

“People are scared because you have oil over $90 a barrel. You also have the housing [slump] scaring them. Both worries are hitting them at the same time,” said David Wyss, chief economist at Standard & Poor’s Ratings Services in New York.

“When consumers get scared, they are going to be spending less money and that’s not good for the economy,” he added.

Unlike previous years, when confidence fell because of transitory factors such as brief spikes in gasoline prices, the current decline was driven by concerns about falling home prices, the group said.

Twenty-eight percent of homeowners said the value of their home declined, above the 1992 peak of 24% who said that during the last housing slump, according to the survey. Twenty-two percent of homeowners expect the value of their home to decline in the year ahead, up from 14% who said that three months earlier.

The group expected confidence to erode further as house prices continue to slide and prices for gas and home heating rise.