US consumer mood at 28-year low

US consumer confidence has hit the lowest levels since the early 1980s, according to a closely-watched survey.

The University of Michigan's index of confidence fell to 59.5 in May, from 63.2 in April - the weakest showing since June 1980.

Short-term inflation expectations also rose, heightening the dilemma for the US Federal Reserve.

The Fed has cut interest rates to 2% in recent months, but has signalled that they are now on hold.

US household budgets have been squeezed by rising petrol prices and higher mortgage bills, while home values have fallen.

Signs of a weak jobs market have also led to consumers tightening their purse strings, particularly when it comes to discretionary items, such as cars.

'Little hope' of early recovery

The gloomy consumer confidence data came out shortly after upbeat US housing construction figures.

Earlier, figures from the Commerce Department showed that housing construction rose by 8.2% in April, while applications for new building permits also increased.

But the consumer confidence figures and surging oil prices weighed on the US market and sent the benchmark Dow Jones falling 30.5 points, or 0.2%, to 12, 959.7.

"Record numbers of consumers viewed the economy in recession and saw little hope of recovery anytime soon," said the agency that publishes the University of Michigan's confidence index.

The International Monetary Fund forecasts that the US economy will grow by just 0.5% during 2008 and will suffer a mild recession in the first half of the year.

The fear is that higher food and energy costs mean consumer prices will continue to rise despite sluggish or stagnant economic growth.

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