Jan. 30 (Bloomberg) -- Confidence among U.S. consumers reached the highest level in almost five years in January as an expanding labor market and rising wages gave Americans more money to spend.

The Conference Board's index rose to 110.3, the highest since May 2002, from a revised 110 the prior month, the New York-based group said today. The proportion of Americans who said jobs are plentiful was the biggest since August 2001.

Increasing optimism is reflected in stronger consumer spending, just as lower fuel costs ease inflationary pressures. The combination helps explain why Federal Reserve policy makers, meeting today and tomorrow, have little reason to raise or lower interest rates in coming months.

``Labor market conditions are good and the consumer feels good about that, which suggests they're going to continue to spend at a healthy clip,'' said Jonathan Basile, an economist at Credit Suisse Holdings in New York. ``Spending is showing no signs of faltering, and that quells fears that the economy will slip because of the housing market.''

Economists forecast the confidence index to rise to 110 from an originally reported 109 the month before, according to the median of 64 forecasts in a Bloomberg News survey.

The increase reflected more optimism about current conditions. Americans' expectations about their financial situations six months from now eased for the first time since August, today's report showed.

``Households are likely to remain active and supportive of the economy,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. ``The expectations component is still at a respectable level.''

Sales at Coach

Companies including New York-based Coach Inc. are reaping the benefits of higher consumer confidence and spending. Coach, the largest U.S. maker of luxury goods, said second-quarter profit rose 31 percent on demand for a new line of handbags that sell for $450 on average.

Coach raised its earnings and sales forecast for the full year. January sales are ``very strong,'' Chief Executive Officer Lew Frankfort said in a statement on Jan. 23.

The Conference Board's measure of present conditions rose to 133.9 in January from 130.5 last month. The expectations index fell to 94.5 from 96.3. Confidence increased in six of nine U.S. regions, with the largest gain in the West North Central U.S., which includes Minnesota, Missouri and Kansas.

Retail sales rose 0.9 percent in December, the most in five months, the government said on Jan. 12. Excluding autos, purchases increased 1 percent. Consumer spending accounts for more than two thirds of the economy.

Personal Spending

A Commerce Department report on Feb. 1 may show that personal spending rose 0.7 percent in December, the most since July, according to a Bloomberg survey of economists.

The share of consumers who said jobs are plentiful rose to 29.9 percent in January from 27.6 percent, the Conference Board said today. The proportion of people who said jobs are hard to get fell to 19.7 percent from 21.3 percent.

The proportion of people who expect their incomes to rise over the next six months fell to 19.8 from 21.4 percent in December. The share expecting more jobs rose to 14.0 from 13.9.

``All in all, the index suggests a moderate improvement in the pace of growth in early 2007,'' Lynn Franco, director of the Conference Board's Consumer Research Center, said in a statement.

Buying Cars, Homes

More people are planning to buy cars and homes in the next six months, the survey showed. The proportion who intend to buy a car rose to 6.2 percent from 5.4 percent, and the percentage of those expecting to buy a home rose to 3.3, the highest since August, from 2.9.

Employers added 167,000 jobs in December, more than economists forecast, and the unemployment rate stayed at 4.5 percent, close to a five-year low. Workers' average hourly earnings rose 0.5 percent, the most in eight months.

A Labor Department report on Feb. 2 will probably show that employers added 150,000 positions this month and the unemployment rate remained unchanged, according to Bloomberg surveys of economists.

Rising wages are helping Americans overcome a housing slump that has caused home prices to stagnate after a five-year boom. The slump has made it harder for consumers to tap the equity in their homes to finance spending on appliances, furniture and renovations.

Economic Growth

Consumer spending is fueling a rebound in economic growth. A Commerce Department report tomorrow will probably show the economy grew at a 3 percent annual rate in the fourth quarter of last year, according to the median forecast in a Bloomberg News survey of economists, compared with growth of 2 percent in the prior quarter.

Declining fuel prices are leaving Americans more to spend on other goods. The price of a gallon of gasoline fell to $2.23 on Jan. 15, from $2.29 a month earlier.

The Conference Board surveys 5,000 households, usually by the middle of each month. Gasoline prices have since fallen further, to $2.15 on Jan. 25, according to the American Automobile Association.

Today's report showed Americans expect inflation to average 4.7 percent in the coming year, down from 4.8 percent in December. The Conference Board's inflation expectations gauge has declined since reaching a high last year of 5.6 percent in May.

Consumers are also getting a lift from rising stock prices, which add to their wealth. The Standard & Poor's 500 Index has averaged 1423.12 this month, up from 1416.42 in December. The index has risen 11 percent in the past year.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: January 30, 2007 13:37 EST