The Reuters/University of Michigan preliminary index of consumer sentiment for November surprisingly climbed to 57.9, from 57.6 in late October. Economists had projected the index to drop to 57. The rise in consumer sentiment in November is primarily being attributed to the sharp fall in gasoline prices.

However, the index is still quite near June low of 56.4 which happens to be the lowest reading for index since 1980. The index hit an all time low of 51.7 in May 1980. The report noted that American consumers were "unanimous in their recognition that the economy was in recession" with a record 97% sharing the opinion.

In 2007, the measure averaged 85.6. The University of Michigan confidence index dates back to 1952.

One-year inflation expectations dropped in November to 2.9% from 3.9% in October. Consumers also expected the unemployment rate to hit 8%, perhaps rising as high as 8.5%.

Consumer sentiment is an important measure to gauge the mood of American consumers. Consumer spending is a vital part of US economy as it accounts for two third of gross domestic product.

Earlier, a Commerce Department report in October showed US consumer spending dropped 0.3% in September. It was the weakest reading for consumer spending in last three years.

Majority of the retailers have been facing the heat of declining consumer spending as financial crisis deepens and job losses mount. A release by Department of Commerce on Friday showed retail sales declined by a record 2.8% in October. This was the fourth straight monthly decline for retail sales. Economists had forecast a drop of 2.3%. Retailers have been tightening their belt to face one of the worst holiday seasons in three decades.

A couple of days back, No.1 US electronic retailer Best Buy (NYSE: BBY) lowered its revenue guidance for the fourth quarter, attributing the decision to "rapid, seismic changes in consumer behavior" The retailer preferred to call the current situation as the most difficult climate ever seen."

Earlier, rival Circuit City (Other OTC: CCTYQ.PK) filed for Chapter 11 bankruptcy as it was unable to weather the current crisis.

Though Wal-Mart (NYSE: WMT) delivered third quarter numbers, the world's largest retailer lowered its profit guidance for third quarter and full year suggesting that even bigger players are not immune to the slowdown in economy.

Other retailers like J.C Penney (NYSE: JCP), Kohl's Corp (NYSE: KSS), Nordstrom Inc. (NYSE: JWN) have reported a decline in earnings in third quarter and have lowered outlook for the fourth quarter.

However, a slightly positive consumer sentiment data failed to cheer the investors. At 11.31 am ET, Dow Jones slumped 2.92%, while Nasdaq Composite and S&P 500 shrank 3.87% and 3.37% respectively.

Disclosure: Author does not own any of the stocks discussed here.