US industry group the Conference Board said its index of sentiment fell to 39.8, from an upwardly-revised 46.4 in September as respondents’ concerns focused on the difficulty of their current situation.
The reading is the lowest since March 2009 and shocked economists that had expected a rise in the index to 46.0, as September was originally reported as 45.4.
The news has sent financial markets sharply down, with the Dow Jones Industrial Average falling 0.8 per cent and the S&P 500 declining one per cent.
In the UK, the FTSE 100 lost 53 points within minutes of the data being released.
"Consumer expectations, which had improved in September, gave back all of the gain and then some, as concerns about business conditions, the labour market and income prospects increased," Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement.
The present situation index slipped to 26.3 from 33.3, while the expectations index declined to 48.7 from 55.1. The expectations gauge was also at its lowest since March 2009.
But economists said the index could have been influenced by the bad news coming out of financial markets, while the fears had not yet translated into a drop in consumer spending.
“This is horrible, but we think next month will be rather less bad. In our view the decline in the index reflects the plunge in stock prices from mid-Sep through early Oct, during which the S&P fell by nearly ten per cent,” said Ian Shepherdson, chief US economist at High Frequency Economics.
“We hoped for better news today, but it will come in time - provided stocks don't roll over again. More importantly, remember that what counts is spending not sentiment, and the latest spending numbers are OK.”