May 15 (Bloomberg) -- Confidence among U.S. consumers rose this month to its highest level since before the collapse of credit markets late last year threw the economy deeper into a recession.

The Reuters/University of Michigan preliminary index of consumer sentiment rose to 67.9 in May from 65.1 in April. The index reached a three-decade low of 55.3 in November.

Surging stocks and signs that the deepest recession in at least five decades is moderating may prompt Americans to increase their spending. Still, the recovery may be drawn out as automakers close factories and showrooms, throwing more people out of work.

“Financial-market improvement and the fiscal stimulus is leading to stabilization in spending and improvement in confidence,” said Dean Maki, co-head of U.S. economic research at Barclays Capital Inc. in New York. “Economic data, while choppy, has improved somewhat, and consumer spending has stabilized.”

Economists projected the sentiment index would rise to 67, according to the median of 53 estimates in a Bloomberg News survey. Forecasts ranged from 63 to 70.5.

Expectations Gauge

The expectations gauge -- which more closely predicts the direction of consumer spending -- rose to 69 from 63.1 in April. A measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy expensive items such as cars, decreased to 66.2 from 68.3.

Consumers in today’s report projected an inflation rate of 2.6 percent over the next 12 months, compared with 2.8 percent in the April survey.

Over the next five years, Americans expected a 2.8 percent rate of inflation, unchanged from the April forecast. These figures are tracked by Federal Reserve policy makers.

Consumer spending rose at a 2.2 percent pace in the first quarter following its longest slump in almost three decades, the government said last month. Still, spending will stagnate in the current three-month period and then not exceed the first quarter’s gain in the second half of the year, economists said in a monthly Bloomberg survey released on May 12. Such spending accounts for 70 percent of the economy.

Consumers have been buoyed by a 32 percent surge in the Standard & Poor’s 500 Index from March 9 lows. Gasoline costs, down nearly 50 percent from July highs, and mortgage rates at historic lows are also boosting sentiment.

Conserving Cash

Still, consumers continue to face unemployment at a quarter-century high of 8.9 percent, home prices down by nearly a third from their peaks and difficulty obtaining credit, so they are focused on conserving cash and spending mainly on essentials.

Kohl’s Corp., the fourth-largest U.S. department-store company, this week posted first-quarter profit that declined less than analysts estimated after April sales exceeded its forecast. Still, net income fell for a seventh straight quarter.

“We expect the consumer to continue to be reluctant to spend and demand to continue to be weak” this year, Chief Executive Officer Kevin Mansell said on a conference call.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net.

Last Updated: May 15, 2009 10:25 EDT