American consumers are getting skittish. This could mean big trouble.

The U.S. consumer confidence index (cci) plummeted 19 points last month—the third-largest drop ever recorded. It was the sharpest one-month plunge in 15 years, abruptly bringing the cci down to 86.6, the lowest level since October 2003.

Certainly Hurricane Katrina was part of the reason, but other factors weighed in too. In August, consumer spending had already fallen by more than $47 billion—the largest decline since November 2001.

Meanwhile, inflation jumped 0.5 percent—the largest monthly gain since September 1990—which represents an annualized rate of 6 percent.

Anxiety over soaring gasoline prices, bigger debt-servicing costs due to rising interest rates, and inflationary pressures were already taking their toll.

The sudden fall of the cci is significant because consumers, on average, generate more than two thirds of the nation’s economic activity, or gross domestic product. Consequently, the cci is a closely watched economic indicator because it measures how optimistic or pessimistic consumers are toward the economy. Consumers are more likely to spend, even on credit, if they feel their personal economic situation will improve in the future. On the other hand, if they expect the future economic situation to deteriorate, they will cut back their consumption—which inevitably puts a drag on the economy.

This month’s cci of 86.6, along with other factors, indicates we are headed in an ugly direction.

The benchmark “neutral” measure of the cci is 100, set in 1985. Subsequent measurements compare to the consumer confidence level at that time. The cci measures current and near-future business and employment conditions, along with family income. Current conditions account for 40 percent of the index and future expectations account for 60 percent.

Consumers claiming that current business conditions are “good” fell almost 5 points to only 25.2 percent. People who feel that jobs are “hard to get” increased to 25.4 percent, from 23.1 percent.

While the overall 19-point drop in the cci was bad enough, the expectations portion of the index plunged almost 22 points. Consumers anticipating business conditions to worsen in the short-term almost doubled to 19.8 percent; 25 percent expect fewer jobs to be available. Also significant is that almost 11 percent of consumers expect their incomes to decrease in the months ahead.

Recently, Federal Reserve Chairman Alan Greenspan revealed a single factor that enabled consumers to boost their spending by a whopping $600 billion last year: borrowing against home equity. As we’ve shown in other articles, that jump in spending cannot continue, considering how little average incomes are rising. As the housing market cools, interest rates climb, energy costs skyrocket, inflationary pressures build and federal deficits soar (there is talk now of a $250 billion bailout of Louisiana), watch for overall consumer confidence to further deteriorate. This month’s steep drop in the cci is a harbinger of what to expect in the future.

Given that personal savings rates have gone negative an unprecedented three months in a row, consumers will have no choice but to cut back consumption. As that happens, businesses will have to cut production and services. That will lead to job layoffs and more outsourcing overseas, which in turn will reduce national consumer consumption even more—a vicious recessionary cycle that the U.S. has weathered before.

This time, however, there is a big difference in that cycle that will tip the scales of destruction: more terrorist strikes and natural disasters to contend with.

Hurricane Katrina, believe it or not, is the tip of an iceberg. What will shipwreck the American economy is beneath the surface—there is much more to come. Bible prophecy reveals that terrorism and disasters will increase unless our nation cleans up its decadent ways, truly repents, and turns to God.

If we don’t, there won’t be any confidence left to measure.