WASHINGTON - An impatient White House is serving notice on banks receiving billions of dollars in federal help to quit hoarding the money and start making more loans.
White House press secretary Dana Perino told reporters Tuesday that the Bush administration is trying to "get banks to do what they are supposed to do," which is lend money. Though there are limits on how much Washington can pressure financial firms, she noted that banks are regulated by the federal government.
Perino said that the administration is watching lending activity very closely and working with the banks to step it up. She said that Anthony Ryan, Treasury's acting undersecretary for domestic finance, was delivering a speech in New York on Tuesday that made this point.
Meanwhile, layoffs, plunging home prices and tumbling investments have pushed consumer pessimism to record levels in October, a private research group said Tuesday. Wall Street shook it off, though, focusing instead on higher global markets amid optimism the Federal Reserve will ease interest rates further.
The Conference Board said the consumer confidence index fell to 38, down from a revised 61.4 in September and significantly below analysts' expectations of 52.
That's the lowest level for the index since the Conference Board began tracking consumer sentiment in 1967, and the third-steepest drop. A year ago, the index stood at 95.2.
Wall Street, which has come to expect bad news on the economy, took the report in stride. The Dow gave up some of its early gains but was still up about 2 percent in midday trading, while the broader S&P 500 index rose 1.7 percent.
Investors are expecting the Federal Reserve to cut its target interest rate Wednesday by up to one-half a percentage point to 1 percent after its two-day meeting that began Tuesday.
In addition, European and Asian financial markets were up significantly Tuesday on expectations of the cut.
The news was not good for Main Street, though.
"Consumers are extremely pessimistic," said Lynn Franco, director of the Conference Board's Consumer Research Center. "This news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season."
Separately, a closely watched index of home prices fell by its steepest ever annual rate in August.
The Standard & Poor's/Case-Shiller 20-city housing index dropped a record 16.6 percent from August last year, the largest drop since its inception in 2000.
The 23.4-point drop in the consumer confidence index from September to October is the steepest since it fell 36.9 points from October 1973 to December 1973, when the economy was in the throes of a severe recession. Then, the index was measured every two months. The index dropped 24.3 points from December 1969 to February 1970, Franco said.
Consumer sentiment is closely watched because consumer spending powers about 70 percent of economic activity.
Household wealth has taken huge hits from the stock market's sharp drop this month along with the extended decline in home prices. The S&P 500 has fallen about 40 percent so far this year.
That, in turn, appears to be causing consumers to significantly scale back their expectations for the current economy and short-term future.
The Conference Board said its present situation index decreased to 41.9 in October from 61.1 last month, while the expectations index, which measures consumers' outlook for the next six months, plummeted to 35.5 from 61.5.
"These numbers are extraordinarily awful," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.
But they may not persist. The drop in the expectations index likely reflects the steep drop in stock prices earlier this month and that probably won't happen again, he added.
In addition, lower gas prices may help improve consumers' outlook, Shepherdson wrote.
But most economists expect the labor market to continue to deteriorate with the unemployment rate projected to rise to 8 percent or higher next year from its current level of 6.1 percent.
On Tuesday, Whirlpool Corp. said it will cut 5,000 jobs. That's on top of other recent layoffs of thousands of workers by Xerox Corp., drugmaker Merck & Co. Inc. and financial services firm National City Corp.