Americans no longer the big spenders

US consumer confidence plunged to a record low in October as consumers felt the bite of the credit crisis. The US consumer confidence index plummeted to 38.0, its lowest reading since the index was launched in 1967 - down from 61.4 in September, and down from 95.2 twelve months ago! The figure has shocked analysts but is it really that surprising with more than 460,000 a week losing their jobs in America and about 6.1% of the workforce now unemployed? Americans have all but stopped spending on discretionary items (non-essential items) such as cars because they are scared of losing their jobs and anxious about the declining value of their homes. The figures do not bode well for American retailers either as they enter into what is meant to be their busy holiday period.

The news increases expectations that the US Central Bank will reduce interest rates this evening to 1% or maybe even 0.75%. Japan and Britain will then probably follow suit before the end of the week. They hope lower interest rates will boost the economy as people will be more likely to borrow and then increase their spending.