DETERIORATING US consumer confidence yesterday dealt a sharp blow to hopes of a sustainable recovery in the world’s largest economy, despite house price data showing a modest improvement.<br /><br />The headline consumer confidence index slipped back to 47.7 in October from 53.4 the previous month and worryingly, still remains well below the 61.4 mark seen at the time of Lehman Brothers’ collapse last September. The current conditions index fell from 23 to 20.7, while the expectations index dropped from 73.7 to 65.7. <br /><br />Paul Dales, US economist at Capital Economics, said: “The fall this month is perhaps surprising given the equity market rally and rebound in house prices.”<br /><br />He added: “Instead, it appears that these influences are being more than offset by falling employment and declining incomes. Clearly, the consumer recovery is built on some very shaky foundations.”<br /><br />The weak consumer confidence figures do not bode well for the last three months of 2009, says James Knightley at ING. <br /><br />He added: “With the cash-for-clunker stimulus ending and wages under downward pressure it is therefore quite clear that US fourth quarter GDP is going to be a lot weaker than the number we will get for the third quarter tomorrow.”<br /><br />However, US home prices appeared to be stabilising. The Standard & Poor’s/Case Shiller house prices index rose 1.2 per cent in August, which trimmed the annual price decline to 11.3 per cent. This marked the fourth consecutive rise in the index.<br /><br />But analysts questioned how long US house prices could recover at this pace. Prices in the US are being supported by tax credits for first-time buyers but this support is scheduled to expire at the end of next month. This may prompt a fall in house prices, analysts said.