Retailer discounts lift some consumer gloom

By Burton Frierson

NEW YORK (Reuters) - Consumer confidence rose unexpectedly in early July from a 28-year low with the help of retail discounts, but the vast majority think the country is in a deepening recession, according to a survey released on Friday.

The Reuters/University of Michigan Surveys of Consumers said the preliminary July reading for its index of consumer sentiment rose slightly to 56.6 from June's final result of 56.4.

Wall Street had expected a July reading of 55.5, according to a Reuters poll of economists. The 63 forecasts in the poll ranged from 50.1 to 57.0.

"The confidence index showed a surprise small uptick but confidence is still very depressed," said Lynn Reaser, chief economist at Bank of America's Investment Strategy Group, Boston.

The June reading was the lowest since 51.7 in May 1980, which was also the weakest reading ever. The index dates back to 1952, though the survey has been conducted since 1946.

The Surveys of Consumers, in a release, also said one-year inflation expectations jumped to the highest since the stagflationary year of 1981, rising to 5.3 percent from June's 5.1 percent.

Five-year inflation expectations held steady at the peak of 3.4 percent it occupied in both May and June, which was the highest in 13 years.

The low overall consumer sentiment and high inflation expectations leave the Federal Reserve in a bind. The U.S. central bank must decide whether to keep interest rates low to support growth or raise them to damp price increases.