Consumer sentiment plunges

Maybe Jim Cramer and John Sununu were right - the outlook of the American consumer appears to be dimming rather quickly as more light is shed on what went on during the housing boom. Of course, rising energy prices don't seem to be helping.

Consumer sentiment, as measured by Reuters and the University of Michigan, plunged in November to the lowest level since Hurricane Katrina in 2005 and it is barely over that mark. In the last 15 years, the current conditions index has been lower only one time - just prior to the invasion of Iraq in 2003.

Once the U.S. consumer loses confidence, they stop borrowing, they stop spending, and then someone plays a clip of Dandy Don Meredith, former Dallas Cowboys quarterback and 1970s Monday Night Football commentator, singing "Turn out the lights, the party's over" for the U.S. economy.

It turns out that the freakishly high 70 percent of GDP that comes from consumer spending might be a problem after all.

This MarketWatch report fills in some of the details.

The consumer expectations index for November reached 64.7 -- also the lowest level following Hurricane Katrina -- down from 70.1 in October.

Ian Shepherdson, chief U.S. economist with High Frequency Economics, wrote that the expectations index "is more worrying now because we can see no reason why it should improve" soon.

He added that confidence is much more likely to continue to slide than recover.

"The timing of this plunge in sentiment, coming just before the holidays, could not be worse," he wrote. "This is the time of year when retailers make their money, but the holiday season is shaping up to be a disaster."

On Thursday, U.S. retailers reported their worst October sales in 12 years, hurt by unseasonably warm weather, record high oil prices, and consumer worries about the housing and credit markets.

The really bad news is that the worst of the gasoline price increases have not yet appeared at gas stations - it is still relatively cheap at only $3 a gallon. More than anything else, the mood of the consumer tracks the price at the pump. If the price of oil remains elevated, many are predicting $4 a gallon just as the holiday shopping season gets into full swing.

That could be a problem.