Consumer confidence drops near 2-year low

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NEW YORK (CNNMoney.com) -- A key barometer of consumer sentiment dropped for a fourth consecutive month, sending the index near its lowest level in two years.

Rising gasoline prices, falling home sales and unstable financial markets have weighed on consumers' spending, the Conference Board reported.

The New York-based Conference Board said Tuesday that its Consumer Confidence Index fell to 87.3 from a revised 95.2 in October. The reading marked the lowest level since October 2005 when it was 85.2. Analysts had expected 91.5.

"We expected a downward trend but it was significantly down," said Anika Khan, an economist at Wachovia.

Economists repeatedly pointed to the worsening housing crisis, tougher lending standards and rising energy prices for the dampened attitudes.

"Consumers' apprehension about the short-term outlook is being fueled by volatility in financial markets, rising prices at the pump and the likelihood of larger home heating bills this winter," Lynn Franco, director of the group's Consumer Research Center, said in a statement.

Consumer confidence is considered a key to Americans' willingness to make purchases, and therefore is a key economic barometer, since consumer spending fuels nearly three-quarters of all U.S. economic activity.

"It has a lot to do with energy and real estate," said Maury Harris, chief economist at UBS. "Energy is going up and real estate is going down."

The report also signaled that consumers are more nervous about the economy going into the next year than experts are.

The index's two main components, the Present Situation Index and the Expectations Index, both declined. The Present Situation Index fell to 115.4 from 118.0 in October, while Expectations Index posted a sharp decline of 68.7 from 80.0.

"I think that certainly people's outlooks are shaped by the media and there are a lot of reported economic news that are bad," Harris said.

Consumers who think conditions are "good" fell to 22.3 percent from 23.2 percent. Meanwhile, those saying conditions are "bad" increased to 19.1 percent from 16.6 percent.

As to the labor market, consumers who are expecting more jobs in the months ahead fell to 10.8 percent from 13.3 percent, while those anticipating fewer jobs rose to 23.1 percent from 20.2 percent. Those expecting their incomes to decrease in the months ahead increased to 11.0 percent from 9.1 percent.

Those expecting business conditions to worsen increased to 16.7 percent from 13.9 percent. Those anticipating business conditions to improve declined to 12.4 percent from 14.0 percent.

"Despite this rather bleak outlook, consumers have not lost their holiday spirit and anticipate spending more on gifts this season than they did last Christmas," Franco said.

"This isn't quite a recession because wages and salaries are still going up, but people are still concerned about their wealth," said Harris, who expects a very tepid increase in sales this holiday season.