Americans most optimistic since 2007 as stocks surge

Americans’ confidence in the economy climbed in May to the highest level in almost six years as rising real estate values and record stock prices boosted household wealth.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment increased to 83.7, the highest since July 2007, from 76.4 in April, a report today showed. Separately, the Conference Board’s gauge of the economic outlook for the next three to six months climbed 0.6% in April, more than forecast.

The gain in confidence shows Americans are overcoming the effects of higher taxes and a package of federal spending cuts, known as sequestration, that threatens to take a toll on jobs. Stocks rallied as the reports underscored forecasts for a pickup in the economic expansion later this year.

“As fiscal drag fades in the second half of the year, the case can be made that overall growth is going to accelerate,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, and the top forecaster of consumer sentiment in the past two years, according to data compiled by Bloomberg. The gain in confidence “is testimony to underlying growth in spending power.”

The Standard & Poor’s 500 Index advanced 0.5% to 1,658.35 at 12:25 p.m. in New York. The Dollar Index rose to the highest level since July 2010. The yield on the 10-year Treasury note climbed to 1.94% from 1.88% late yesterday.

Another report from the Labor Department today showed payrolls climbed in 30 states in April, while the unemployment rate dropped in 40, showing the labor market strengthened across the country.

Texas Leads

Texas led the gains in payrolls, adding 33,100 jobs last month, followed by New York and Florida. California, New York and South Carolina were among states with the biggest decreases in joblessness.

In Europe, car sales rose in the year ended in April for the first time since September 2011, adding to signs that the 27-nation bloc’s recession may be short-lived.

Today’s U.S. data alleviated concern the world’s largest economy will keep slowing after reports this week showed industrial production declined more than forecast in April and first-time claims for unemployment benefits increased last week.

The Michigan survey follows a Bloomberg measure of consumer outlook, which improved in May to its best reading in five months. The Bloomberg consumer economic expectations gauge, released monthly, rose to minus 1 from minus 4 in April.

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