Dec. 30 (Bloomberg) -- Consumer confidence sank to the lowest level in at least 41 years this month as Americans grew more concerned about keeping their jobs and paying their mortgages, raising the risk they’ll spend less next year.

The Conference Board’s sentiment index unexpectedly fell to 38, the lowest reading since records began in 1967, the New York- based private research group said today. Another report showed that a drop in home values accelerated in October as credit dried up.

Economists had been counting on a plunge in gasoline prices to improve consumers’ moods. The decline in confidence signals that spending will tumble further next year and prolong the recession after a holiday shopping season that may have been the worst in at least four decades.

“The deterioration going on right now in the labor market made people feel much worse,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “If people are worried about their jobs, they are not going to spend. That is extremely negative.”

The confidence figure was projected to increase to 45.5 from a previously reported 44.9 for November, according to the median of 52 projections. Estimates ranged from 40 to 51.1.

Stocks briefly pared gains after the reports, then resumed a rally sparked by the government’s announcement yesterday of plans to shore up General Motors Corp.’s finance arm. The Standard & Poor’s 500 index rose 2.4 percent to close at 890.6. Treasury securities rose, pushing yields toward record lows.

Employment

The share of consumers who said jobs are plentiful fell to 6.2 percent, the lowest level in 16 years, from 8.7 percent last month, today’s report showed. The proportion of people who said jobs are hard to get increased to 42 percent from 37.1 percent.

Home prices declined in the year ended in October in all 20 cities in the S&P/Case-Shiller home-price index. The gauge fell a record 18 percent from a year earlier, led by declines in Phoenix and Las Vegas. Fourteen of the 20 cities showed record declines from a year earlier.

Other housing reports this month have shown property values are deteriorating even faster as foreclosures climb. Home resales, which account for about 90 percent of the market, dropped in November and median-home prices fell 13 percent from a year earlier, the most since records began in 1968, the National Association of Realtors said last week. Foreclosures and so- called short sales, or purchases at less than the value of the outstanding mortgage, accounted for 45 percent of last month’s total, the agents’ group also said.

Six-Month Outlook

The Conference Board’s gauge showed Americans’ views about their financial well-being in future months deteriorated. An index of the outlook for the next six months decreased to 43.8 from 46.2 in November.

The share of respondents expecting their incomes to rise over the next six months fell to 12.7 percent from 13.1 percent. Americans were more hopeful of finding jobs in the future.

The measure of present conditions dropped to 29.4 from 42.3.

“The overall economic outlook remains quite dismal for the first half of 2009,” Lynn Franco, director of the Conference Board’s consumer survey, said in a statement.

The grimmer view on jobs swamped the effects of the drop in gasoline prices that helped other confidence measures climb this month. The Reuters/University of Michigan’s sentiment gauge rose from November’s 28-year low.

The average price of a gallon of regular gasoline dropped to $1.62 on Dec. 28, down 61 percent from July’s record.

Vanishing Jobs, Wealth

That wasn’t enough to overcome the damage from the loss of 1.9 million jobs and a slump in household wealth after the collapse of home and stock prices.

The S&P/Case-Shiller home-price index of 20 U.S. metropolitan areas fell a record 18 percent in October from a year earlier, led by declines in Phoenix and Las Vegas. All 20 cities showed a decline in the year ended in October.

Gross domestic product contracted at a 0.5 percent annual pace in the third quarter, the worst performance in seven years, the Commerce Department said last week. Economists surveyed by Bloomberg earlier this month projected the economy will contract at a 4.3 percent rate this quarter, hurt by another decline in consumer spending.

The jobless rate could reach 8.2 percent at the end of next year compared with last month’s 15-year high of 6.7 percent, according to the survey.

Obama’s Goals

President-elect Barack Obama has expanded his economic stimulus goals and called for creating or saving 3 million jobs over the next two years. Vice President-elect Joe Biden said Dec. 23 the incoming administration and congressional leaders are nearing an agreement on the broad principles of a stimulus policy.

The International Council of Shopping Centers projects this was the worst holiday shopping season, the most important period for retailers, in at least four decades.

“It’s dismal,” Patrick Byrne, chief executive officer of Overstock.com, the Internet seller of discounted brand-name goods, said Dec. 24 in an interview on Bloomberg Television. “It seems the entire retail nation is running a going-out-of-business sale. It means the pricing is very competitive.”

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.netShobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: December 30, 2008 16:27 EST