(Bloomberg News) Consumer confidence unexpectedly slumped in October to the lowest level since March 2009, when the U.S. economy was in a recession, as Americans' outlooks for employment and incomes soured.

The Conference Board's sentiment index decreased to 39.8 from a revised 46.4 reading in September, figures from the New York-based private research group showed today. This month's reading was less than the most pessimistic forecast in a Bloomberg News survey in which the median projection was 46.

Limited job availability, deteriorating home values and the threat of a European debt default are weighing on sentiment. A drop in optimism helps explain concern among some companies like Levi Strauss & Co. that spending will be restrained during the holiday shopping season.

"The outlook continues to deteriorate," said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York. "This is not good for the holidays, which won't be horrible but will definitely be worse than last year."

Estimates in the Bloomberg survey of 76 economists ranged from 42.5 to 52. The index averaged 53.7 during the 18-month recession that ended in June 2009.

Stocks held earlier losses and Treasuries gained after the figures. The Standard & Poor's 500 Index fell 1 percent to 1,241.58 at 10:21 a.m. in New York. The yield on the benchmark 10-year Treasury note declined to 2.18 percent from 2.23 percent late yesterday.

Home Prices Drop

Housing remains in the doldrums. Home prices in 20 major cities fell 3.8 percent in August from a year earlier, more than forecast, after a 4.2 percent drop in the prior 12-month period, according to S&P/Case Shiller data released today.

Federal Reserve Bank of New York President William C. Dudley yesterday said falling home values pose "a serious impediment to a stronger economic recovery" and predicted "continued modest growth" for the U.S.

"Continued house price declines could lead to even more defaults, foreclosures and distress sales, undermining wealth, confidence and spending," Dudley said in the text of remarks given at Fordham University in the Bronx. "Breaking this vicious cycle is one of the most pressing issues facing policy makers."

Today's confidence report is in line with other recent surveys. The Bloomberg Consumer Comfort Index's monthly expectations gauge dropped in October to the lowest level since February 2009. The Thomson Reuters/University of Michigan preliminary index of consumer expectations for six month from now dropped in October to the lowest since May 1980.