May 16 (Bloomberg) -- U.S. consumer confidence was the weakest this month since Jimmy Carter was president, and single- family home construction fell to a 17-year low in April.

The Reuters/University of Michigan preliminary index of consumer sentiment dropped to 59.5, compared with an average reading of 85.6 in 2007. Builders broke ground on 692,000 single-family homes at an annual rate, the Commerce Department said today in Washington. Total housing starts unexpectedly rose because of an increase in condominium construction.

The figures show that consumers see more pain ahead, even as Wall Street executives proclaim that the worst of the credit crisis is over. The rout in housing is depressing home values, a threat to the consumer spending that accounts for more than two- thirds of gross domestic product.

``We are in the neighborhood of zero'' growth, Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said in a Bloomberg Television interview. Consumer sentiment is also being hurt by the increase in energy costs, which ``will weigh on consumer spending,'' he said.

Treasuries rallied after the confidence figure fell more than forecast. Yields on benchmark 10-year notes fell to 3.78 percent at 11:37 a.m. in New York from 3.82 percent late yesterday. The Standard & Poor's 500 Index dropped 0.5 percent to 1,420.41.

Total housing starts jumped 8.2 percent to 1.032 million as construction of multifamily units rose 36 percent following a 35 percent drop in March, the Commerce figures showed.

`A Ways to Go'

``There may be signs that we are getting close to a bottom but we don't think we're there yet,'' said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. ``The housing market still has a ways to go towards working off its problems.''

Lower prices and other incentives have yet to revive demand for houses, indicating builders will need to come up with even more discounts to attract buyers. Stricter lending rules, job losses and growing pessimism about the economy signal sales will not rebound quickly.

Building permits, a sign of future construction, rose 4.9 percent to a 978,000 pace, reflecting gains in both single- and multifamily units.

Economists had forecast starts would fall to an annual pace of 939,000, according to the median of 73 projections in a Bloomberg News survey. Building permits were projected to fall to a 915,000 annual rate.

The confidence index was forecast to fall to 62, according to the median of 65 forecasts. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 51.7 from 53.3.

`Deep Distress'

``These are terrible readings,'' Richard Dekaser, chief economist at National City Corp. in Cleveland, said in a Bloomberg Television interview. ``The popular sentiment right now is that the economy is in deep distress and it's looking towards dim prospects going forward.''

A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to 71.7, the lowest level since December 1980, from 77.

Consumers said they expect an inflation rate of 5.2 percent over the next 12 months, compared with 4.8 percent in the April survey. Longer-term, Americans projected prices would increase 3.3 percent, up from a 3.2 percent estimate last month.

Builders' Confidence

Builders' confidence continues to flag. The National Association of Home Builders/Wells Fargo sentiment index fell one point to 19 this month, the group said yesterday.

``The trends are horrific,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, who had the closest housing-starts estimate in Bloomberg's survey. ``There's just no reason things are getting any better. Why would you buy a house? Why would you spend money to buy a depreciating asset?''

Starts increased in three of four regions, led by a 24 percent jump in the Midwest. Construction rose 19 percent in the West and 3.6 percent in the South. Starts dropped 13 percent in the Northeast.

Residential construction has subtracted from economic growth since the first three months of 2006, culminating in a 27 percent drop at an annual rate in the first quarter. That was the biggest decline since 1981.

Fed's Yellen

Home construction and property values ``seem likely to decline well into 2009,'' Federal Reserve Bank of San Francisco President Janet Yellen said May 13.

The economy expanded at a 0.6 percent annual pace in the first quarter, according to Commerce Department data. Economists surveyed by Bloomberg forecast growth from April through June would slow to a 0.1 percent pace and consumer spending would advance at a 0.5 percent rate, the smallest increase in 17 years.

Toll Brothers Inc., the largest U.S. luxury-home builder, said May 13 that revenue declined for an eighth straight quarter and that most housing markets remain depressed.

The number of potential buyers at its developments was the ``worst we've ever seen,'' Chief Executive Officer Robert Toll said on a conference call.

A jump in foreclosures, as values fall and adjustable-rate mortgage costs rise, is adding to concern. Foreclosure filings climbed 65 percent and bank seizures more than doubled in April compared with a year earlier, according to figures issued this week by RealtyTrac Inc.

To contact the reporters on this story: Courtney Schlisserman in the New York newsroom cschlisserma@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: May 16, 2008 11:53 EDT