July 11 (Bloomberg) -- Confidence among U.S. consumers in July remained near the lowest level since 1980, signaling spending may slow after the effects of the federal tax rebates fade.

The Reuters/University of Michigan preliminary index of consumer sentiment rose to 56.6 from 56.4 in June. The measure averaged 85.6 in 2007.

The collapse in confidence threatens gains in consumer spending, the biggest part of the U.S. economy, as Americans face record-high gasoline prices, a weak labor market and the worst housing market in 25 years. The survey also showed consumers expect the inflation rate over the next five years to be 3.4 percent, the same as they expected in June.

``Household net worth is getting hammered by declining house prices, declining equity prices, and the cost of fuel and energy has spiked,'' said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts.

Economists had forecast the confidence index would fall to 55.5, according to the median of 60 projections in a Bloomberg News survey. Estimates ranged from 51 to 57.

Consumers polled by Reuters/University of Michigan said they expect an inflation rate of 5.3 percent over the next 12 months, compared with a 5.1 percent forecast in the June survey.

The price of crude oil rose more than $5 a barrel to a record $146.90 earlier today on the New York Mercantile Exchange. The price of regular gasoline reached a record $4.108 a gallon earlier this week, according to AAA, the largest U.S. motoring club.

Expectations

The survey's index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 48.3, also the lowest since 1980, from 49.2.

A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, increased to 69.5 from 67.6 the prior month.

Government reports earlier today showed the U.S. trade deficit unexpectedly narrowed in May and prices of imported goods rose more than forecast in June.

The gap between imports and exports shrank 1.2 percent to $59.8 billion as the cheaper dollar spurred gains in exports that helped make up for more expensive imported oil, Commerce Department figures showed. Import prices jumped 2.6 percent in June on record energy costs, the Labor Department reported.

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: July 11, 2008 10:35 EDT