November 12, 2010 / 3:14 PM / 9 years ago

Consumer sentiment rises to highest since June

NEW YORK (Reuters) - U.S. consumer sentiment rose more than expected in early November and hit its best level since June, helped by a slightly better economic outlook and early holiday sales, a survey showed on Friday.

The Thomson Reuters/University of Michigan’s preliminary November reading on consumer sentiment came in at 69.3, up from 67.7 in October and slightly higher than the median Reuters forecast of 69.0.

The reading on the overall index was just above the 68.2 average of the last four months but below the post-recession high of 76.0 from June, according to the report.

“The slight improvement in sentiment suggests that spending will continue at close to its current rate through Christmas, which is better than expected even a few months ago. But it’s not going to be enough to make a material dent in the unemployment rate,” said Christopher Low, chief economist at FTN Financial in New York.

Unemployment, at 9.6 percent, is seen as one of the biggest drags on the U.S. economy, even though recent data has suggested small signs of economic improvement. Weekly jobless benefit claims, reported on Wednesday, hit a four-month low.

The sentiment survey’s one-year inflation expectations measure also gained, edging up to 3.0 percent from 2.7 percent last month, and hit its highest level since May.

Speculation about higher inflation has risen with the Federal Reserve’s announcement last week that it would buy more debt in an effort to boost the economy.

“Even a marginally but noticeably higher inflation rate, especially for food and fuel, is likely to increase malaise and be associated with greater savings rather than spending,” the sentiment survey’s director, Richard Curtin, said in a statement.

Early holiday retail sales, however, helped consumer sentiment in recent weeks. Consumer spending typically accounts for about two-thirds of U.S. economic activity.

U.S. retail sales data for October is due on Monday. Some retailers have been cautiously optimistic about holiday spending so far, with J.C. Penney Co Inc (JCP.N) on Friday being the latest to forecast a rise in same-store sales during the holiday quarter.

The survey’s barometer of current economic conditions rose to 79.7 from October’s reading of 76.6, also above a forecast of 77.0. Like the sentiment reading, it was the best level since June.

A gauge of consumer expectations rose to 62.7 from 61.9 in October. But it was below a forecast for 63.5.

U.S. markets showed little reaction to the sentiment data.

But the benchmark Standard & Poor's 500 index .SPX fell 1.4 percent following a slide in natural resource stocks. Data on Thursday showed Chinese inflation sped to a 25-month high in October, signaling more policy tightening may be ahead.

However, U.S. stocks have rallied since late August, and the S&P is up 15 percent since the August 31 close, thanks in part to the economic stimulus from the Fed and Republican gains in last week’s mid-term elections.

Unemployment and higher taxes were among chief concerns in the election, and Republicans are pushing for a full extension of tax cuts enacted during former President George W. Bush’s administration.

Additional reporting by Emily Flitter; Editing by Dan Grebler

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