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Consumer Sentiment in U.S. Climbs to Highest Since 2007

Consumer confidence rose in May to the highest level since October 2007 as Americans became more upbeat about the prospects for employment.

The Thomson Reuters/University of Michigan final index of sentiment climbed to 79.3, the ninth straight increase, from 76.4 the prior month. The gauge was projected to hold at the preliminary reading of 77.8, according to the median forecast of economists surveyed by Bloomberg News.

A record number of households said they’d heard better news on the jobs outlook, which combined with cheaper gasoline and an improving housing market may help sustain consumer spending and shield the economy from Europe’s debt crisis. The figures also showed 63 percent of Americans, the most in more than a year, had a favorable view of buying conditions for big-ticket items.

“This is telling us the consumer is feeling OK,” said Robert Brusca, president of Fact & Opinion Economics in New York, who projected a final reading of 78.5 in May. “There seems to be enough real improvement in the job market for confidence to be increasing. When confidence readings increase, you can be pretty sure consumer spending numbers will go up.”

Estimates for the confidence measure ranged from 76 to 79, according to the Bloomberg survey of 60 economists. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.

Stocks Decline

Stocks fell as concern about Spain’s finances tempered optimism with the Michigan figures. The Standard & Poor’s 500 Index dropped 0.2 percent to 1,317.82 at the close in New York. The yield on the benchmark 10-year Treasury note decreased to 1.74 percent from 1.78 percent late yesterday.

Michigan’s reading for May contrasts with the Bloomberg Consumer Comfort Index, which has lost ground after reaching a four-year high a month ago.

Today’s figures also indicated Europe’s financial crisis was not high on the list of Americans’ concerns. Reports today showed it’s also having limited impact on sentiment in Europe.

German consumer confidence will be steady in June, according to GfK SE. The group’s consumer-sentiment index will hold at 5.7 next month, the Nuremberg-based market research company said today.

A separate report showed confidence in France increased in May to the highest since November 2010.

Current Conditions

The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, rose to 87.2, the strongest since January 2008, from 82.9 the prior month.

The index of consumer expectations six months from now, which more closely projects the direction of consumer spending, increased to 74.3, the highest since July 2007, from 72.3 in April.

The unemployment rate slid to 8.1 percent in April, the lowest level since January 2009, Labor Department figures showed this month. Employers added 115,000 workers to payrolls, the fewest since October, according to the data.

“The most likely prospect is that job growth resumes at a modest pace and that confidence remains largely unchanged until after the November election and decisions about tax policy are made,” Richard Curtin, head of the University of Michigan’s consumer survey, said in a statement.

Jobs Forecast

Economists project payroll growth expanded by about 150,000 this month, according to the median estimate in a Bloomberg survey. The Labor Department will issue its May employment report on June 1.

Labor market progress would help rouse confidence after concerns about Europe’s debt crisis weighed on the U.S. stock market. The S&P 500 was down 7 percent from an almost four-year- high in early April through yesterday.

“The economy and consumer sentiment remains fragile and we can foresee the possibility of more turbulence from outside events as we move through the year,” Stuart Brown, vice president and chief financial officer of Red Robin Gourmet Burgers Inc. (RRGB), said during a May 16 earnings call. Shares of the Greenwood Village, Colorado-based restaurant chain dropped last week by the most in two years after it said same-store sales will rise 1 percent this year.

PetSmart Inc. (PETM) is among companies that are more upbeat. The Phoenix-based retailer of pet food, supplies and services said on May 22 that its first-quarter same-store sales climbed 7.4 percent.

‘Cautiously Optimistic’

“Although the macroeconomic environment still holds some uncertainty, we remain cautiously optimistic about the outlook for 2012,” Lawrence Molloy, chief financial officer, said on the company’s earnings call.

A saving grace could also come from less expensive prices at the pump. The average price of a gallon of gasoline fell to $3.67 yesterday from a peak this year of $3.94 in early April, according to AAA, the nation’s largest automobile organization.

Consumers in today’s confidence report said they expect an inflation rate of 3 percent over the next 12 months, compared with 3.2 percent in the prior survey. Over the next five years, Americans expected a 2.7 percent rate of inflation, compared with a previously reported 2.9 percent in the previous report.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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