U.S. Michigan Consumer Index Unexpectedly Increased

By Shobhana Chandra

July 25 (Bloomberg) -- Confidence among U.S. consumers unexpectedly rose in July from the lowest level since 1980, a sign that tax rebates and a rally in the stock market may have improved Americans' moods.

The Reuters/University of Michigan final index of consumer sentiment increased to 61.2 in July from 56.4 in June. The measure averaged 85.6 in 2007 and is up from a preliminary reading of 56.6 in early July.

The tax rebates are putting extra cash in Americans' pockets, helping their budgets overcome the drag from gasoline at more than $4 a gallon, lower home values, fewer jobs and less access to credit. Consumer spending may falter after the lift from the stimulus fades.

``It's probably more of a blip in a weak trend,'' said James O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. ``Confidence is still at a level that's consistent with fairly weak consumer spending.''

The confidence index was forecast to register 56.4, according to the median estimate of 58 economists surveyed by Bloomberg News. Estimates ranged from 54 to 57.9.

New-Homes Sales

A government report today showed more new homes than forecast were sold in the U.S. in June and the number of properties on the market dropped by the most in four decades, indicating builders are making some headway in clearing out inventories.

Purchases decreased 0.6 percent to a 530,000 pace, from an upwardly revised 533,000 in May, the Commerce Department said today in Washington. Economists had forecast a drop to a 503,000 pace.

A separate report showed orders for U.S. durable goods unexpectedly increased in June, easing concern that companies would limit spending as raw-material costs soared. The 0.8 percent gain in bookings for goods meant to last several years followed a revised 0.1 percent increase in May.

Today's University of Michigan report showed the index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to 53.5 from 49.2 in the prior month.

A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, rose to 73.1 from 67.6.

Inflation Expectations

Consumers said they expect an inflation rate of 5.1 percent over the next 12 months, the same as in the June survey. They expect the inflation rate over the next five years to be 3.2 percent, down from a forecast of 3.4 percent in June.

The final Reuters/University of Michigan consumer confidence report reflects about 500 responses, compared with 300 households for the preliminary survey.

The Federal Reserve this week said five of its 12 regional bank districts indicated ``a weakening or softening'' in their economies, and consumer spending was ``sluggish or slowing'' in every region, according to its economic survey, known as the Beige Book for the color of its cover.

Regular unleaded gasoline prices have risen this month after crossing $4 a gallon at the pump in June. They have jumped by about a third since the beginning of the year, according to AAA.

Under the government's plan to support consumers, $91.8 billion in rebates was sent out as of July 11, according to the Treasury Department. Recent Commerce Department figures showed retail sales rose less than forecast in June, signaling the boost from the tax rebates may already be fading.

Supermarkets are among companies getting hurt as cash- strapped consumers buy cheaper brands or slow spending. Supervalu Inc. this month said annual profit will rise less than it forecast, while Safeway Inc. revised down its 2008 sales projection for existing stores.

``I don't think any of us feel the economy is going to improve any time soon, at least not consumer confidence,'' Safeway Chief Executive Officer Steven Burd said on a July 17 conference call with investors.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net