May 11 (Bloomberg) -- Consumer confidence rose in May to the highest level in four years, indicating falling fuel costs are helping households look past weaker employment growth.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 77.8, the highest since January 2008, from 76.4 the prior month. The gauge was projected to drop to 76, according to the median forecast of 68 economists surveyed by Bloomberg News.
Gasoline prices that have declined 21 cents from an almost one-year high may help household finances just as job growth slowed in April to weakest pace in five months. The extra income that comes from cheaper fuel may help consumers maintain the spending that accounts for 70 percent of the economy.
“The drop in gasoline prices is a prominent player in improving consumer sentiment,” Mekael Teshome, an economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. “Falling gas prices is like a tax cut for consumers, so that will be a key driver in sustaining spending. We’re expecting a persistent, moderate recovery in the labor market.”
Estimates in the Bloomberg survey ranged from 73.5 to 78. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.
Shares Trim Losses
The unexpected gain in confidence helped stocks trim earlier losses. The Standard & Poor’s 500 Index was down 0.1 percent to 1,356.24 at 10:10 a.m. in New York. It dropped as much as 0.7 percent at the open after JPMorgan Chase & Co. said it had a $2 billion trading loss.
Today’s report runs counter to the Bloomberg Consumer Comfort Index, which slumped last week to the lowest level since February as labor market growth lost steam.
The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, climbed to 87.3, also a four-year high, from 82.9 the prior month.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 71.7 from 72.3.
A saving grace may come from less expensive prices at the pump. The average price of a gallon of gasoline fell to $3.73 on May 10 from a peak this year of $3.94 in early April, according to AAA, the nation’s largest motoring organization.
Consumers in today’s confidence report said they expect an inflation rate of 3.1 percent over the next 12 months, the lowest this year, compared with 3.2 percent in the prior survey.
Over the next five years, Americans expected a 3 percent rate of inflation, compared with a previously reported 2.9 percent in the previous report.
A weight on consumers’ view of the economy, employers added 115,000 new workers in April, the smallest number since October, according to figures from the Labor Department reported last week. The jobless rate also fell as people left the labor force.
“The U.S. economy is recovering but at a stubbornly slow pace,” Carl Camden, president and chief executive officer of Kelly Services Inc., a staffing agency, said during a May 9 earnings call. “Large companies still aren’t spending and adding jobs as quickly as would’ve been expected.”