The Conference Board, a New York-based business research group, said Tuesday that its Consumer Confidence Index plummeted to 38 in October from an upwardly revised reading of 61.4 in September.
Last month's decline brings the index to its lowest level since its inception in 1967.
"Consumers certainly appear to think the sky is falling," said Adam York, economic analyst at Wachovia Economics Group, in a research note.
Economists were expecting the index to have declined to 52, according to a survey by Briefing.com.
"The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers' confidence," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement.
The nation's financial system has been under considerable strain in October as the credit crunch has hampered businesses ability to fund essential activities.
At the same time, stock prices have plunged as investors fear the global economy is on the verge of recession. The Dow Jones industrial average has fallen more than 27% so far this month.
"While the current reading may be an overreaction to the bad news in October, it does make clear that consumers understand that we have firmly moved into a recessionary environment and that this slowdown will be the worst in a generation," York said.
Even though gas prices have come down significantly in recent weeks, putting more cash in consumers' pockets, Americans now appear more focused on the deteriorating job market.
So far this year, the economy has lost 760,000 jobs, according to the Labor Department's September payrolls report.
A case in point: Whirlpool Corp., the nation's largest home appliance maker, said Tuesday it will cut about 5,000 jobs by the end of 2009 to cope with the credit crisis and weak demand.
Many economists worry that weakness in consumer spending, which makes up two-thirds of the nation's economic activity, will result in further contraction of gross domestic product (GDP) in the fourth quarter.
The government will release its advance report on third-quarter GDP Thursday. A consensus of economists expect a 0.5% annual rate of decline after a 2.8% annual growth rate in the second quarter, according to Briefing.com.
"In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter," Franco said.
Indeed, the survey found that the number of consumers saying business conditions are "bad" increased to 38.3% from 33.4%.
The assessment of the labor market was significantly worse. The percentage of consumers saying jobs are "hard to get" rose to 37.2% from 32.2%. Those claiming jobs are "plentiful" decreased to 8.9% from 12.6% in September.
Looking ahead, the index showed that consumers see more challenges in the short-term outlook.
Americans expecting business conditions to worsen over the next six months jumped to 36.6% from 21%. Those anticipating fewer jobs in the months ahead rose to 41.5% from 26.9% last month.
Despite consumers' low level of confidence, the index showed some signs that they are still considering major purchases in the near future.
The percentage of those planning to buy a new car in the next six months rose slightly to 1.7% from 1.5%. But those with plans to buy a used car declined sharply to 1.7% from 2.3%.
On the housing front, the number of respondents planning to buy a home in the coming months rose to 2.7% from 2.3%.
The number of consumers planning to buy household appliances in the next six months declined to 25.9% from 29% in September. And the number of households with vacation plans increased to 38.7% from 37.3%.
The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.
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