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Confidence among U.S. consumers unexpectedly improved in August, boosting the prospect of stronger household spending this quarter.
The Thomson Reuters/University of Michigan preliminary August index of consumer sentiment increased to 73.6, the highest level since May, from 72.3 the prior month. The gauge was projected to be little changed at 72.2, according to the median forecast of 72 economists surveyed by Bloomberg.
After two months of sliding sentiment, August's advance indicates consumers may be feeling the benefits of growing payrolls. Rising confidence raises the odds households can sustain July's pickup in retail sales, which set the pace for stronger growth in the third quarter.
"The fundamentals behind consumers are not that bad," George Mokrzan, director of economics for Huntington National Bank in Columbus, Ohio, said before the report. "Consumer finances are improving. We're actually moving to a stage where we could get some more substantial improvements" in spending.
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.
Michigan's sentiment reading for August contrasts with the Bloomberg Consumer Comfort Index, which slumped last week to the lowest level since January.
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, improved to 87.6 from 82.7 the prior month. It is the highest number since January 2008.
The index of consumer expectations six months from now, which more closely projects the direction of consumer spending, fell to 64.5, an eight-month low, from 65.6 in July.
Rising confidence could help induce more households to head to shops and malls and restaurants, stoking the expansion after they gave it less support last quarter. Consumer spending, about 70 percent of the economy, grew at a 1.5 percent annual rate from April to June, down from a 2.4 percent pace in the previous three months, according to Commerce Department data.
Retail sales advanced 0.8 percent in July, the biggest increase since February and the first in four months, easing some concern that elevated unemployment will cause households to retrench.
Supporting the growth in demand, payrolls increased by 163,000 in July, the most in five months, Labor Department figures show. The jobless rate, nonetheless, rose to 8.3 percent, a five-month high.
"Unemployment rates have remained around 8 percent, as we all know, for the past two quarters, and given all of this in the current economic situation, our perspective is we would need to see more stable growth signals before expecting U.S. consumer confidence levels to show a sustained increase," Ajay Banga, president and chief executive officer of Mastercard Inc., said during an Aug. 1 earnings call.
Gas prices could also hamper steady gains in confidence. The average price of a gallon of regular gasoline rose to $3.72 on Aug. 16 after sliding to $3.33 in early July, the lowest in six months, according to AAA, the nation's largest auto club.
Consumers in today's confidence report said they expect an inflation rate of 3.6 percent over the next 12 months, compared with 3 percent in the prior survey. Over the next five years, Americans expected a 3 percent rate of inflation, compared with a previously reported 2.7 percent in the previous report.