Consumer confidence tumbles amid debt crises and market upheaval

A shopper on Broadway, New York. Photograph: Chris Hondros/Getty Images

Debt crises and financial market turmoil have triggered sharp falls in consumer confidence in Britain, the rest of Europe and the US, threatening to plunge western economies into a downward spiral. Pessimism among Britons has reached levels usually seen in a recession, while US consumer confidence tumbled to the lowest in two years.

Economists and government officials say the eurozone is being affected by the recent market turbulence caused by growing fears that some governments, led by Greece, could default on their debts. Stock and bond markets have fallen sharply in recent weeks, amid concerns that efforts by eurozone government leaders are not enough to contain the crisis.

Confidence in the US also fell sharply by almost 15 points to 44.5, according to the Conference Board's monthly gauge. This is the lowest level since April 2009 and worse than analysts had expected.

"This is just so ugly," Tom Porcelli, US economist at RBC Capital Markets in New York, told Reuters. "Should we even be surprised by this? Slipping into levels we saw during the recession – that's where the consumer psyche is. They are wondering out loud whether the economy is slipping back into a recession."

A closely watched index measuring UK consumer confidence from GfK NOP dropped for the third month in a row to hit -31 in August, 13 points below a year ago and one point lower than July. The index also hit -31 in April this year, but bounced back the following month boosted by sunny weather and the royal wedding.

Previously, it had only been as low on two other occasions – during the downturn of 2008-2009 and in the early months of 1990. On both occasions the decline in consumer confidence mirrored a slide into recession, noted Nick Moon, managing director of GfK NOP Social Research.

"With an increasing number of indicators suggesting the economy is either stagnating or returning to recession, the continuing loss of consumer confidence is a major worry for the government," he added. "However, despite the four-point drop in consumers' general view of the economic situation over the next 12 months, there has been a small improvement in how they view their own financial situations, indicating people are starting to adapt to the austere economic climate."

The royal feel-good factor has clearly worn off as the US and eurozone debt crises deepened, triggering fears the world economy could slide back into recession. Britons are putting off buying big items such as a car or house, with the major purchases measure staying at -31, down 11 points from a year ago.

In the eurozone, business and consumer confidence declined for the sixth month. The European Union's economic sentiment index fell by 5 points to 97.3 for the EU, and by 4.7 to 98.3 for the 17 countries using the euro, taking the index below its long-term average of 100. Germany, Europe's largest economy which has been the main engine of growth in the past year, suffered the biggest drop.

François Cabau, European economist at Barclays Capital, said: "For the first time since December 2008, both headline business and consumer confidence fell by more than three points. In a month affected by volatile market behaviour, we believe that the deepening of the sovereign debt crisis, combined with the material loss of momentum in the real economy, risks plunging confidence indices into a self-sustaining negative spiral."

Unemployment expectations rose 9.4 points to 25.5, the highest index level since July 2010. Perceptions of the general economic situation in the next 12 months have worsened sharply too, to -23.4 from -14.2, the lowest level since July 2009.