Consumer confidence plummets to new low-WEB ONLY

Americans’ already battered confidence in the economy went into free fall this month, sinking to new lows as consumers grow more fearful over massive job cuts and shrinking retirement accounts.

The dismal news came just hours after major retailers, including Target Corp., Home Depot and Macy’s Inc., reported depressed fourth-quarter results as shoppers focus on necessities like food. And another widely watched index showed home prices tumbled by the sharpest annual rate on record in the fourth quarter and in December.

Federal Reserve Chairman Ben Bernanke told Congress today the economy is suffering through a “severe contraction” and pledged to use all available tools to lift the country out of the recession that already has cost millions of Americans their jobs.

In testimony prepared for the Senate Banking Committee, Bernanke said the economy is likely to keep shrinking in the first six months of this year. Housing, credit and financial crises – the worst since the 1930s – plunged the economy into its worst downhill slide in a quarter-century at the end of last year.

Bernanke hoped that the current recession, now in its second year, will end this year.
But he said there were significant risks to that forecast and any economic turnaround would hinge on the success of the Fed and the Obama administration in getting credit and financial markets to operate more normally again.

“Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Bernanke said.

The New York-based Conference Board said today that its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February, to 25, from the revised 37.4 last month. That was well below the 35.5 level that economists surveyed by Thomson Reuters expected.

The index, which had hovered in the high 30s over the past few months, broke new lows since it began in 1967. A year ago, the consumer confidence reading stood at 76.4.

The Present Situation index, which is consumers’ assessment of current economic conditions, fell to 21.2 from 29.7 last month. The Expectations’ Index, which is consumers’ outlook over the next six months, sank to 27.5 from 42.5.

“Looking ahead, increasing concerns about business conditions, employment and earnings have further sapped confidence and driven expectations to their lowest level ever,” Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

Franco added that the report showed worries about inflation, which had eased over the past several months, picked up. Economists carefully monitor consumer confidence since consumer spending accounts for more than two-thirds of economic activity.

Signs of a further collapse in consumer confidence is bad news for the economy and stores, whose success hinges on consumers being in the mood to spend. But economists fear that shoppers’ moods likely will remain battered throughout most of the year as employers continue to slash jobs at a torrid pace.

Consumers also are nervous about still-sinking home prices, and the latest report from the Standard & Poor’s/Case-Shiller U.S. National Home Price Index, showed conditions deteriorating further.

The national index plunged 18.2 percent during the quarter from the year-ago period, the largest drop in its 21-year history. Prices are now at levels not seen since the third quarter of 2003. In the month of December, the Case-Shiller 20-city index plunged 18.5 percent from December 2007 levels, while the 10-city index dropped 19.2 percent.

Economists had hoped the passage of the $787 billion economic stimulus plan would help lift confidence. But investors, wary about the plan’s impact, have pushed stocks lower. And while the government has said it doesn’t want to nationalize banks, many investors are worried about the possibility as banks continue to suffer severe losses.

Job security is a major factor behind shoppers’ ability and willingness to spend. In fact, the U.S. unemployment rate – now at 7.6 percent, the highest in more than 16 years – is expected hit a peak of 9 percent this year, according to the latest outlook from leading forecasters in a survey by the National Association for Business Economics.