(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.

Expectations Weakened

The Conference Board's data showed a measure of present conditions decreased to an 11-month low of 26.3 from 33.3. The measure of expectations for the next six months slumped to 48.7, the lowest since March 2009, from 55.1.

The share of consumers who said jobs were plentiful fell to 3.4 percent, the lowest since December 2009, from 5.6 percent. Confidence dropped in six of nine U.S. regions, according to today's report.

The percent of respondents in the Conference Board survey expecting more jobs to become available in the next six months dropped to 11.3 from 11.9 the previous month.

The proportion expecting their incomes to rise over the next six months decreased to 10.3 percent, the weakest since October 2010, from 13.5 percent.

The report also showed that 53.4 percent expect stocks to decline in the next year, the most since October 2008.

Holiday Sales

Levi Strauss is bracing for tepid sales this holiday season after back-to-school shoppers in the U.S. balked at higher prices on its namesake jeans and Dockers pants.

"It is hard to imagine a very robust holiday season compared to last year," Chief Financial Officer Blake Jorgensen said in a telephone interview Oct. 11 from San Francisco, where closely held Levi is based. "We remain cautious around where the future is going over the next couple of quarters."

Stagnant labor and housing markets are weighing on Americans' outlooks. Home prices continue to fall more than two years into the recovery while joblessness has held close to or above 9 percent for 30 months.

Through September, the economy had recovered about 2.09 million of the 8.75 million jobs lost as a result of the 18- month recession that ended in June 2009.

Payrolls grew an average 96,000 a month in the July-to- September period, about the same as in the second quarter and down from 166,000 in the first three months of the year.