Today’s consumer confidence readings have economists pointing to the possibility of a severe consumer recession in the United States.

National Bank Financial reports that data released today by the U.S. Conference Board finds the confidence index fell 11.9 points in March, “the biggest monthly decline since the fall of 2005 when Hurricanes Katrina and Rita ravaged the U.S. coastline.”

Also, the all-important expectations component plunged to its lowest level since December 1973. “This development does not bode well for consumer spending in the first half of 2008. Looking back at 40 years of data, we find that such a low level of optimism has always coincided with a drop in volume spending,” NBF says. “We continue to see U.S. real GDP contracting at about 1% annualized in the first half of the year, led down by real personal consumption expenditures.”

Merrill Lynch & Co. Inc. says that, “the headwinds blowing against the U.S. consumer suggest that consumers are on the verge of the worst downturn since the 1970s.”

“Today’s consumer confidence report, which saw consumer expectations plummet to the lowest since 1973 show that Fed policy eases and $300 rebate checks from Uncle Sam are proving no match for rocketing pump prices, intensifying real estate deflation, the worst financial crisis in decades and a deteriorating economic and employment backdrop,” Merrill observes.

Based on the expectations component, Merrill says the index is suggesting that the “recession could be deep and prolonged, unlike the previous two recessionary episodes in the early 1990s and 2001, which were short and shallow.”

“If the U.S. economy is facing a 1970s style recession, the downside risks to consumer discretionary stocks remain considerable,” Merrill adds. “At this time, the consumer discretionary sector is priced about 65% of the way for an average recession while staples are only priced about 25% of the way.”