By Timothy R. Homan Oct. 31 (Bloomberg) -- Confidence among U.S. consumers fell in October by the most on record, signaling spending will continue to weaken. The Reuters/University of Michigan final index of consumer sentiment dropped to 57.6 from 70.3 in September, the biggest decline since monthly data began in 1978. The measure averaged 85.6 in 2007. The dimming outlook is likely to drag down spending, which contracted last quarter by the most in three decades and accounts for more than two-thirds of the U.S. economy. Americans are cutting back on purchases of necessities and big-ticket items as home values fall, stock prices slump and job losses climb. ``The collapse in confidence is directly tied to perceptions about economic conditions, and that is likely to mean that households will keep their wallets closed,'' Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report. ``Given this is the holiday shopping season, that is not good news for retailers.'' The confidence index was forecast to fall to 57.5, according to the median of 60 economists surveyed by Bloomberg News. Estimates ranged from 50 to 63. A government report earlier today showed spending by U.S. consumers fell 0.3 percent in September, capping the worst quarter in three decades. Business Slump Separately, a survey of Chicago purchasing managers showed business contracted in October at the fastest pace since the 2001 recession. The Institute for Supply Management-Chicago said its index slumped to 37.8 this month, the lowest reading since May 2001, from 56.7 in September. Fifty is the dividing line between growth and contraction. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 57 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 58.4, the lowest level ever, from 75. There was good news on price expectations. Consumers said they projected an inflation rate of 3.9 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 2.9 percent rate of inflation, down from the prior month and the slowest pace since March. Survey Details The final Reuters/University of Michigan consumer confidence report reflects about 500 responses, compared with 300 households for the preliminary survey. Cutbacks in consumer spending are likely to drag down company earnings during the holiday season. Amazon.com Inc., the world's largest Internet retailer, said last week that its 2008 sales may be $1 billion less than analysts estimated. Chief Financial Officer Tom Szkutak said in an Oct. 22 conference call that growth slowed toward the end of the third quarter, ``coinciding'' with disruptions in the financial markets. Holiday shopping in the fourth quarter last year accounted for 43 percent of Amazon.com's annual profit. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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