Consumer sentiment hits 8-month high

NEW YORK Fri Feb 11, 2011 6:06pm EST

Shoppers depart with their bags at Toys R Us on Black Friday in New York November 26, 2010. REUTERS/Jessica Rinaldi

Shoppers depart with their bags at Toys R Us on Black Friday in New York November 26, 2010.

Credit: Reuters/Jessica Rinaldi

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NEW YORK (Reuters) - U.S. consumer sentiment rose to an eight-month high in early February, boosted by recent tax cuts and optimism about the labor market, but consumers were less sanguine about the economy in the longer term.

A separate report on Friday also suggested stronger consumer activity as the U.S. trade deficit widened slightly more than forecast in December to its highest level in four months.

Consumers expect to see improvement in the economy and job market this year, but the recovery was still anticipated to fall short and worries about inflation and its effect on wages weighed, according to the latest consumer surveys from Thomson Reuters and the University of Michigan.

Consumer confidence was also boosted by the recent package of tax cuts and improved personal finances.

The preliminary February reading for the overall index on consumer sentiment came in at 75.1, up from 74.2 in January.

It was the highest level since June 2010 and was roughly in-line with the median forecast of 75 expected by economists polled by Reuters.

"Further proof that the U.S. economy is rebounding at a stronger pace than expected. It's been reflected in virtually all recent data outside of inflation data," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

The survey's barometer of current economic conditions jumped to 86.8, the highest level since January 2008, while the gauge of consumer expectations slipped to 67.6 from January's 69.3.

"While consumers are becoming more optimistic about current conditions, they remain wary about stretching that optimism beyond the immediate future given continued headwinds in the labor market and overseas," Omair Sharif, an economist at RBS, wrote in a note.

Concerns over inflation have been creeping up lately as commodity prices rise and on jitters that strength in the economy will force the Federal Reserve to hike interest rates sooner than expected. Nonetheless, the Fed is largely viewed as maintaining its accommodative policy for some time.

The survey showed the one-year inflation expectation was unchanged at 3.4 percent, the highest rate since the fall of 2008. The five-to-10-year inflation outlook also was unchanged at 2.9 percent.

U.S. Treasuries touched session highs following the data as some worried about the long-term outlook, though markets were more focused on news Egypt's president had bowed to relentless pressure from a popular uprising and stepped down.

The December trade deficit grew nearly 6 percent to $40.6 billion as the average price for imported oil leapt to its highest level since October 2008.

Overall imports of goods and services were also their highest since October 2008, in a sign consumers and businesses are spending more as the economy picks up steam.

A separate survey of forecasters showed the U.S. economy and jobs market are expected to grow more strongly in the first quarter than previously expected.

The Federal Reserve Bank of Philadelphia's survey of 43 professional forecasters sees the economy growing at an annual rate of 3.6 percent in the current quarter, up from the estimate of 2.4 percent three months ago.

Though employment remains one of the biggest challenges for the economy, there have been signs the job market recovery is continuing, if not gaining speed.

In another positive sign, a measure of future U.S. economic growth rose to a 39-week high in the latest week, according to the Economic Cycle Research Institute, an independent forecasting group.

(Additional reporting by Caroline Valetkevitch and Steve Johnson in New York and Doug Palmer in Washington; Editing by Andrea Ricci)

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