WASHINGTON/NEW YORK U.S. consumer sentiment rose to its highest level in more than four years in early May as Americans were upbeat about the job market and buying plans improved, a survey showed on Friday, offering an encouraging sign for the economic recovery.
Separate data earlier in the day showed U.S. producer prices unexpectedly fell in April as energy costs dropped the most in six months, a sign of easing inflation pressures that could give the Federal Reserve more room to help the economy should growth weaken.
The Thomson Reuters/University of Michigan's preliminary May reading on the overall index on consumer sentiment improved to 77.8 from 76.4 in April, topping forecasts for a small decline to 76.2.
It was the highest level since January 2008.
Despite the recent slowdown in job growth, nearly twice as many consumers reported hearing about new job gains than said they had heard about recent job losses, the survey said.
Even so, consumers were only slightly more optimistic about declines in the unemployment rate than they were a year ago, with only one in four expecting it to fall in the year ahead.
Employers cut back on hiring in April and March after an acceleration at the start of the year. April's unemployment rate eased to 8.1 percent as more people dropped out of the work force.
In a potential harbinger of increased spending, consumers' buying plans for vehicles and durable goods improved at the beginning of the month, with 65 percent saying buying conditions were favorable, the highest level in more than a year.
"Households are feeling more comfortable. It's pretty good news for consumer spending," said Gus Faucher, senior macroeconomist at PNC Financial Services in Pittsburgh.
U.S. stocks crept higher in midday trading as the data helped offset the revelation of JPMorgan Chase's $2 billion trading loss.
After a run-up at the start of the year, gasoline prices have pulled back in recent weeks, providing more breathing room for stretched consumers, and the survey found no further gains in prices were expected in the year ahead.
Survey director Richard Curtin said that while the lower gasoline prices are good news for consumers, he expects the sentiment index will likely be stuck around current levels until the U.S. presidential election in November.
Also on Friday, the Labor Department said its seasonally adjusted producer price index dropped 0.2 percent last month. That was the first drop this year and the biggest decline since October.
Economists polled by Reuters had expected prices at farms, factories and refineries to be flat last month.
"The good news is that there are no signs that inflation could threaten the Federal Reserve's expansionary monetary policy any time soon," Eugenio Aleman, senior economist at Wells Fargo, wrote in a note.
"The bad news is that if inflation continues to decelerate, then the Fed will probably start getting concerned that economic activity is weakening once again."
A number of Fed officials appear loath to take further action to help the economy, with some arguing the central bank needs to get ready to begin withdrawing its extraordinary stimulus. The Fed has maintained since January that it expects economic conditions to warrant holding interest rates near zero through at least late 2014.
Still, the annual inflation rate targeted by the Fed continues to hover around the central bank's 2 percent goal, and Friday's price data did not appear to change investors' views on the outlook for monetary policy.
A report on consumer prices due next week is expected to give further signs that inflation is ebbing.
The consumer sentiment report showed Americans' inflation expectations continued to ease after a run-up in March. The one-year inflation expectation fell to 3.1 percent from 3.2 percent, though the five-to-10-year outlook edged up to 3.0 percent from 2.9 percent.
"This is good news for the Fed. It gives them still room (to) maneuver in the year ahead," Richard Curtin told Reuters Insider.
That was in contrast to a separate survey that showed economists ratcheted up their inflation forecasts to an average 2.3 percent for the year, from earlier expectations of 2.0 percent.
The Philadelphia Federal Reserve's second-quarter survey of forecasters also showed economists see the unemployment rate averaging 8.1 percent this year and falling to 7.7 percent in 2013.
The New York Federal Reserve's staff forecast, released on Friday, also expects the unemployment rate to continue to fall over the next two years before averaging about 7.2 percent in the fourth quarter of 2013.
The report on April producer prices showed wholesale prices 1.9 percent higher in April than a year earlier, the weakest reading since October 2009.
The drop in PPI was due to a 1.4 percent decline in energy prices, the biggest since October. Gasoline costs slumped 1.7 percent, while prices also fell for residential natural gas and liquefied petroleum gas.
Wholesale prices excluding volatile food and energy costs rose in line with economist' expectations, up 0.2 percent after March's 0.3 percent gain.
(Additional reporting by Richard Leong in New York; Editing by Dan Grebler)