WASHINGTON (MarketWatch) — A gauge of consumer sentiment plunged in July as views on the current economy and expectations worsened, according to an index released Friday.

The Thomson Reuters/University of Michigan index of consumer sentiment fell to 63.8 in early July, reaching the lowest level since March of 2009, from 71.5 in June, according to media reports.

Economists surveyed by MarketWatch had expected the barometer to tick down to 71.3. See economic calendar.

The sentiment reading, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year before the start of the most recent recession. A tough employment environment, volatile stocks and energy prices have been weighing down sentiment.

“Consumer sentiment dropped to its weakest level since the economy began to recover,” wrote RDQ Economics analysts in a research note. “In part this may be despair at the jobs situation and part of it may reflect the completely dysfunctional state of the negotiations over the budget and debt ceiling.”

Concerned about debt

A bright spot in the report: one-year inflation expectations declined to 3.4% in July from 3.8% in June.

Debt talks move To Plans B and C

But other details were grim. The gauge for current economic conditions dropped to 76.3 in July from 82 in June. Meanwhile the expectations barometer fell to 55.8 from 64.8.

The sentiment news comes as tense negotiations continue on the nation’s debt ceiling. Negotiators in Washington have been unable to reach a deal, and analysts are worried about the potential for substantial economic harm.

“With the stalled debt discussions in Washington, all the talk about U.S. government defaulting on their debt (an inconceivable concept that is becoming more of a reality as the clock ticks), the possibility of Americans not receiving social security or Veterans’ checks…..well, such a decline is totally understandable under the circumstances,” wrote Jennifer Lee, senior economist at BMO Capital Markets, in a research note.

July’s plunge is not the beginning of a new trend, but does reflect concern over the stalled debt-ceiling talks, wrote analysts at Bank of America Merrill Lynch in a research note: “Over the last several months the news cycle has been dominated by bad economic news - debt ceiling, employment report, etc - and consumers are now depressed. We would expect that once the debt ceiling debate in Washington is resolved and the ongoing soft patch ends that we would expect a bounce back in consumer sentiment.”