Aug. 15 (Bloomberg) -- Confidence among U.S. consumers showed the first back-to-back gain in almost two years in August as lower energy prices helped lift sentiment from a 28-year low.

The Reuters/University of Michigan preliminary index of consumer sentiment increased to 61.7, less than forecast, from 61.2 in July. The measure averaged 85.6 in 2007.

Declining gasoline prices may prevent consumer spending, the biggest part of the U.S. economy, from collapsing as Americans face a weakening labor market and the worst housing market in 26 years. The survey showed consumers expect the inflation rate over the next five years to be 3.2 percent, unchanged from last month.

``Consumers still remain pretty pessimistic,'' Arun Raha, a senior economist at Swiss Re in New York, said in an interview with Bloomberg Television. ``This little-higher number is probably the result of lower gas prices. The economy remains pretty weak and consumer sentiment reflects that.''

Economists had forecast the confidence index would rise to 62, according to the median of 64 projections in a Bloomberg News survey. Estimates ranged from 56 to 69.

The Federal Reserve today said U.S. industrial production rose in July, boosted by gains in automobiles, metals and machinery. A separate report from the Fed Bank of New York showed manufacturing in that region this month unexpectedly grew as the cost of raw materials subsided.

Price Expectations

Consumers polled by Reuters/University of Michigan said they expect an inflation rate of 4.8 percent over the next 12 months, down from a 5.1 percent forecast in the July survey.

The cost of living was up 5.6 percent in the year ended in July, the biggest jump in 17 years, the Labor Department said yesterday. So-called core prices, which exclude food and energy, also rose more than projected.

Sales at U.S. retailers dropped in July for the first time in five months, the Commerce Department said this week. Wal-Mart Stores Inc., the world's largest retailer, this week said that sales at stores open at least a year might not rise more than 1 percent in the third quarter as the boost from the federal tax rebates fades.

Today's index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, improved to 56.8, the highest since March, from 53.5.

Current Concerns

A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy cars and other big-ticket items, decreased to 69.3 from 73.1 the prior month.

Sales at U.S. auto dealers and parts stores dropped 2.4 percent in July, government figures this week showed. Industry figures showed purchases dropped to the weakest level since 1993.

Commodity costs have subsided since mid-July. Crude oil futures dropped below $112 a barrel today after peaking at $147 last month. Regular gasoline, which reached a record $4.11 a gallon on July 17, has fallen about 8 percent, according to AAA.

The final Reuters/University of Michigan consumer confidence report reflects about 500 responses, compared with 300 households for the preliminary survey.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Last Updated: August 15, 2008 10:26 EDT