Consumer mood improves unexpectedly early May

By Richard Leong

NEW YORK (Reuters) - Consumer sentiment took a surprise upturn in early May, as a favorable job outlook and a booming stock market muted the impact of record high gasoline prices, according to a poll published on Friday.

Moreover, rising gasoline prices did not intensify consumers' inflation fears, as some analysts had predicted.

The Reuters/University of Michigan Surveys of Consumers said its preliminary May consumer sentiment index rose to 88.7 from 87.1 at the end of April. The latest figure was above the median forecast of 86.5 among 65 analysts polled by Reuters.

"Following the repeated increases over the past few years, it is hardly surprising that $3 (per gallon gasoline) ... has lost its shock value," said Richard Curtin, director of the Reuters/University of Michigan Surveys of Consumers.

The survey's gauge of current consumer conditions was 103.8 in early May, down from a final April reading of 104.6 but its measure of consumer expectations rose to 79.0 from 75.9.

"The full impact of higher gas prices may have been masked by increases in stock prices as well as a stronger outlook for employment," Curtin cautioned in a statement.

The unexpected improvement in the index helped soothe worries about the economy and corporate profits, extending stocks' upswing, although bond prices stayed in negative territory.

The current stock rally, fueled by a surge in mergers and acquisitions and better-than-expected earnings, has cushioned household wealth, which had been crimped by a slowdown in the U.S. housing market.

While job growth has slowed this year, the labor market remains tight and income has been growing at a steady clip.

"High gasoline prices weighed on the current conditions index, but the job situation is still pretty good and people are feeling pretty good about that right now," said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis, Missouri. "The stock market doing better is also making people feel a little more positive about the economy."

The preliminary May figures showed consumers by and large were not rattled by the recent surge in gasoline prices, which broke above $3 a gallon in recent weeks, the survey said.

The survey's one-year inflation expectations index edged down to 3.2 percent in early May from a seven-month high of 3.3 percent set in late April. while its five- to 10-year inflation expectations index held steady at 3.1 percent.

The national price for regular unleaded gasoline averaged $3.10 a gallon, a record high, up 5 cents from last week and up 16 cents from a year earlier, the Energy Information Administration said on Monday.

The U.S. factory sector also showed modest growth in March. The Commerce Department said on Friday it did not adjust its March readings on factory orders, which grew 3.1 percent, as

part of its annual benchmark revisions.

A drop in jobless claims and booming stock prices resulted in a weekly gauge of future economic growth to a three-year high. For details see .

The Economic Cycle Research Institute's weekly leading index edged up to 142.7 in the week ended May 11, boosting its annualized growth rate to 6.1 percent. The rate reached its highest since the week ended May 21, 2004. .

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