By Shobhana Chandra Oct. 17 (Bloomberg) -- Confidence among U.S. consumers fell by the most on record in October, raising the risk that spending will slump as job losses mount and financial markets crash. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 57.5 from 70.3 in September, the biggest decline since monthly records began in 1978. The measure, which averaged 85.6 in 2007, was lower than forecast. Americans felt less secure after the Standard & Poor's 500 Index fell every trading day but two so far this month, the credit crunch intensified and businesses cut more jobs. Further cutbacks in consumer spending, which accounts for more than two- thirds of the economy, will deepen a recession. ``Even gasoline-price decreases were overpowered by the massive destruction of wealth,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. ``Things are pretty awful in the economy and that should make itself felt through weaker consumer spending.'' The confidence index was forecast to fall to 65, according to the median of 61 economists surveyed by Bloomberg News. Estimates ranged from 55 to 74.1. A government report earlier today showed housing starts in the U.S. fell more than forecast in September as construction of single-family homes plunged to the lowest level in a quarter century. Work began on 817,000 houses last month, down 6.3 percent from August's level, the Commerce Department said in Washington. Construction of single-family homes dropped 12 percent to a 544,000 rate, the fewest since February 1982. Breakdown The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 56.7 from 67.2. A gauge of current conditions, which reflects Americans' perceptions of their financial situations and whether it is a good time to buy big-ticket items like cars, slumped to 58.9, the lowest level ever, from 75. There was mixed news on price expectations. Consumers said they projected an inflation rate of 4.5 percent over the next 12 months, compared with 4.3 percent in the September survey. Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 2.8 percent rate of inflation, down from the prior month and the slowest pace in a year. The preliminary Reuters/University of Michigan consumer confidence report reflects about 300 responses, compared with 500 households for the final survey. Gasoline Prices Regular unleaded gasoline prices slid to an average $3.08 a gallon at the pump on Oct. 15, from $3.63 on Sept. 30, according to AAA. Shoppers are becoming more cautious. Sales at U.S. stores open at least a year rose 1 percent last week from a year earlier, slowing for the eighth time in nine weeks, the International Council of Shopping Centers and Goldman Sachs Group Inc. said in a statement on Oct. 14. Wal-Mart Stores Inc., the world's largest retailer, reaffirmed its profit forecast for the third quarter after shoppers seeking discounted groceries and household goods helped to boost the Bentonville, Arkansas-based company's September sales. Consumers ``continue to look for basics for their families,'' Eduardo Castro-Wright, Wal-Mart's U.S. stores chief, said in an Oct. 8 statement. -- With reporting by Chris Burritt in Greensboro, North Carolina. Editors: Mark Rohner, Carlos Torres To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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