NEW YORK - With the holiday shopping season about to start, consumer confidence is hovering near the lowest it's been since President Bush's father was commander in chief. It may dip more as Americans open their 401(k) statements and see how much they've lost in the last few weeks.
The Conference Board said Tuesday that its Consumer Confidence Index is now at 59.8. That's up slightly from a revised 58.5 in August and higher than analysts expected.
But it's still about half what it was a year ago and near the lowest since the index registered 54.6 in October 1992 when the economy was coming out of a recession.
Now George H. W. Bush's son is wrestling with his own economic crisis. Home prices are plummeting, foreclosures are rising, jobs are dwindling, fuel and food costs are soaring and Wall Street is writhing in the grips of its worst financial emergency since the Great Depression.
On Monday, the House defeated a $700 billion bailout package aimed at sweeping bad mortgage-related debt off the books of banks, thrifts, credit unions and insurance companies to jump start lending and get the economy moving again.
Its failure sent shock waves up and down Pennsylvania Avenue and all the way to Wall Street, where investors wiped away $1.2 trillion in value from retirement funds, mutual funds and individual stock holdings. The Dow industrials dropped 778 points Monday, their largest point drop ever.
"We are already at battered (confidence) levels, and I would not be surprised if it gets lower from here," said Adam York, an economic analyst at Wachovia Securities.
The Conference Board survey, based on a sample of 5,000 U.S. households, aims at measuring how much faith people have in the job market and in the economy now and over the next six months. Consumer spending represents about two-thirds of all economic activity.
The cutoff date for responses to the survey was September 23 and doesn't capture Monday's stock market plunge.
The Present Situation Index, which measures shoppers' current assessment of the economy, decreased to 58.8 from 65.0 in September. The Expectations Index, which measures consumers' outlook for the next six months, however, increased to 60.5 from 54.1 in August.
"September's increase in the Consumer Confidence Index was due solely to an improvement in the short-term outlook," said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement. "However, these results did not capture all of the tumultuous events in the financial sector this month, and until the dust settles a bit more, we will not know the full impact on consumers' expectations."
Franco added that shocks such as the 1987 stock market crash "generally tend to have a temporary adverse effect on confidence, lasting on average two to four months unless they result in significant job losses."
The unemployment rate — now at a five-year high of 6.1 percent — is expected to hit 7 or 7.5 percent by late 2009, which would be the highest since after the 1990-91 recession. Some economists say the jobless rate could rise even more.
"Just as noteworthy, consumers' assessment of current conditions continues to indicate that the current economic environment remains quite weak," Franco said.
Since mid-September, the nation has been rocked by disruptions in the financial markets that led to the downfall of Lehman Brothers, forced Merrill Lynch into the arms of Bank of America and pushed Washington Mutual, the nation's largest thrift, to failure.
On Tuesday, stocks staged a partial rebound, but credit markets remained locked tight and a key rate that banks charge to lend to one another shot higher. That lack of confidence affects everything from car loans to the short-term debt companies take on to pay their workers.
Many analysts predict the economy could contract in the final quarter of this year and in the first quarter of next year. That would meet the classic definition of a recession — two consecutive quarters of economic contraction. If Congress doesn't act, analysts believe the economy could shrink even more.
Congressional leaders were rushing Tuesday to find out what changes are needed to sell the financial system bailout to rank-and-file members and to the American people.
"The dramatic drop in the stock market that we saw yesterday will have a direct impact on retirement accounts, pension funds and personal savings of millions of our citizens," Bush said Tuesday in front of cameras. "And if our nation continues on this course, the economic damage will be painful and lasting."
The housing crisis is one of the biggest problems the economy faces. As long as home prices keep falling, foreclosures will rise, budgets will be strained and financial companies still will take hits.
Mortgage rates have been on a roller coaster, and the confidence of home buyers and sellers has been eroded.
A closely watched index showed home prices in 20 cities from Boston to Phoenix to Miami fell by the sharpest annual rate ever in July. The Standard & Poor's/Case-Shiller 20-city housing index also showed the rate of monthly declines is slowing, but analysts said that wasn't evidence that real estate prices were bottoming out.
With home prices dropping, stock values falling and Washington in disarray, many Americans may not be in the mood to spend heavily this holiday season.
"Americans usually find a way to do something for the holidays...but we are calling this the weakest period since the 1981 recession," said York.