US consumer sentiment lowest in 26 years

The warning signs of a US recession have flashed again as consumer sentiment sank to its lowest in 26 years and corporate earnings appeared set for their third consecutive quarter of contraction.

The dour statistics and grim outlook for US companies could present a dilemma for the Federal Reserve, which is seen as eager to wind down its campaign of aggressive interest rate cuts even though the economy is still struggling.

The Reuters/University of Michigan Surveys of Consumers index of confidence for April fell to 62.6 from 69.5 in March, sliding deeper into recessionary territory and coming in worse than economists had expected.

It was the worst reading since March 1982, when the "stagflationary" period of low growth and high inflation was still an issue for many Americans.

"Consumer confidence continues to tank," said Kevin Flanagan, fixed-income strategist in the global wealth management unit at Morgan Stanley in Purchase, New York.

President George W Bush acknowledged that the US economy was in a "slowdown" but said tax rebates that will start hitting consumers' bank accounts next week should help.

"The money's going to help Americans offset the high prices we're seeing at the gas pump and the grocery store and it will also give our economy a boost to help us pull out of this economic slowdown," Bush said.

The government has accelerated its schedule for distributing the rebate payments under a $152 billion (Dh558bn) economic stimulus package.

The Michigan report contributed to a difficult day for stocks, which were also undermined for a while by disappointing results from Microsoft Corp. But Wall Street managed to pull back into positive territory late in the day. Microsoft, however, was representative of a US corporate profits picture that continued to weaken.

Earnings are on pace for the third consecutive quarter of declines, according to the latest data compiled by Thomson Reuters. That is the most protracted downturn in company earnings since the last recession.

With more than half of the companies in the benchmark Standard & Poor's 500 index reporting results, earnings for the first quarter are on pace to fall 14.1 per cent from a year before, largely due to weakness in results from the banking and consumer discretionary sectors.

The dollar hit a three-week high against the euro, but it was benefiting from the growing view that the Fed is close to a pause in rate cuts.

Government bonds, which usually benefit from signs of economic weakness, fell as investors were unnerved by signs of a resurgence in global inflation. (Reuters)