US consumer confidence tumbles

DaimlerChrysler is one victim of the spending slump

US consumer confidence has fallen for the fifth consecutive month to its lowest level since June 1996, according a key survey published on Tuesday.

The Conference Board, which measures the US public's optimism about the economy, reported that its consumer confidence index fell by nine points to 106.8 from a revised 115.7 in January.

We are still undergoing moderate growth and not a recession

Lynn Franco
Conference Board

Economists polled by the news agency Reuters had forecast the index would fall to 109.6.

A slew of profit warnings from companies such as Motorola, Sun Microsystems and Texas Instruments, have all blamed a slowdown in the US economy for their problems.

Hopes of a rate cut

However, the fall does increase hopes of another US interest-rate cut.

Some analysts are even predicting a surprise cut as early as this week, particularly as the index is closely watched by the Federal Reserve.

In recent testimony Fed Chairman Alan Greenspan said that the consumer confidence would be a crucial factor in keeping the US out of recession.

The Bear Stearns chief economist and former Fed governor Wayne Angell has been forecasting a possible rate cut since last Friday.

Not a recession?

Despite the sharp fall in confidence, the private research group said that results of the survey do not indicate a recession.

"Consumers' appraisal of current economic conditions suggests we are still undergoing moderate growth and not a recession," said Lynn Franco, director of the Conference Board's consumer research centre.

The consumer confidence survey is based on a representative sample of 5000 US households.

Consumer spending makes up about two-thirds of economic output.

US housing

A separate report on US housing on Tuesday also suggested that the economy could be in trouble.

Buyers for new homes plunged 10.9% to a 921,000 on an annual basis in January. This is the lowest level in 11 years, even though mortgage rates are falling.

Nasdaq tumbles

The weaker-than-expected economic data hammered tech stocks on Tuesday, pushing the Nasdaq down 100.74 points, or 4.36%, to 2,207.76.