updated 8/30/2005 1:17:57 PM ET 2005-08-30T17:17:57

Consumers reassured by the strengthening job market stayed optimistic in August despite the surging price of gasoline, giving a widely followed measure of consumer confidence an unexpected boost.

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The Conference Board said Tuesday its Consumer Confidence Index, compiled from a survey of U.S. households, rose to 105.6 this month up from a revised 103.6 in July. The August figure was better than the 101 analysts expected.

“Consumers appear to be weathering the steady rise in gas prices quite well,” Lynn Franco, director of private group’s Consumer Research Center, said in a statement.

Wall Street had little reaction to the upbeat confidence report, with investors focusing on the impact of Katrina. In early afternoon, the Dow Jones industrial average fell 74.67, or 0.71 percent, to 10,388.38. The news didn’t boost retail stocks. Wal-Mart Stores Inc.’s shares fell 1.64 percent, or 75 cent to $44.90, while Target Corp.’s shares fell 2.39 percent, or $1.33, to $54.39 on the New York Stock Exchange.

The increase in confidence, which followed a drop in July, came as a surprise to economists with the average price of gas reaching $2.61 a gallon nationwide last week. Prices were expected to surge again this week as Hurricane Katrina affected refinery output in the Gulf of Mexico.

The upbeat confidence report is also in contrast to the sluggish sales pace seen at the nation’s stores this month, with the International Council of Shopping Centers reporting Tuesday that sales decreased for the fourth straight week. Merchants are scheduled to report their August figures on Thursday. And while hot weather has wilted shoppers’ appetite for fall clothing like sweaters, some analysts believe higher oil prices are starting to make middle-income consumers scale back on discretionary purchases.

Economists closely track consumer confidence because consumer spending accounts for two-thirds of all U.S. economic activity. With gas prices climbing, and heating costs also expected to be sharply higher this fall and winter, there have been concerns among economists and business owners that energy prices would prompt consumers to retrench. Up until now, consumers have been largely resilient to oil’s upward trek, though low-income shoppers have reduced their spending over the last year, dampening sales at stores like Wal-Mart Stores Inc.

“It is important to look at what consumers are doing, not what they are saying,” said Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C. “And consumers are already starting to cut back on discretionary purchases.” He believes one of the most vulnerable areas will be jewelry.

Vitner believes that while the confidence level is a fairly accurate assessment, the rise is misleading. “Consumers are still cautiously optimistic, and they will be severely tested by any further runup of oil prices,” he said.

Whether job gains triumph over consumers’ concerns over rising gasoline prices in the coming months remains to be seen, but the latest snapshot on consumer sentiment shows that they seem to be secure in the job market.

One component of the Conference Board report, which looks at consumers’ views of the current economic situation, rose to 123.6, from 119.3, which was the highest level in nearly four years and was propelled by consumers’ stronger confidence in the labor market. Another component, the Expectations Index, which measures consumers’ outlook over the next six months, edged up to 93.7 from 93.2 last month.

The Conference Board index is derived from responses received through Aug. 23 to a survey mailed to 5,000 households in a consumer research panel. The figures released Tuesday include responses from at least 2,500 households.

Consumers’ overall assessment of ongoing conditions was considerably more favorable in August. Those claiming business conditions are “good” increased to 29.8 percent from 28.7 percent. Those claiming conditions are “bad” slipped to 15.1 percent from 16.7 percent.

The employment picture was also upbeat. The number of consumers saying jobs are “hard to get” fell to 23.2 percent from 23.8 percent, while those claiming jobs are “plentiful” rose to 23.5 percent from 22.9 percent. For the first time since October 2001, consumers claiming jobs are plentiful outnumber those claiming jobs are hard to get.

Consumers’ short-term outlook improved marginally from July. The number of consumers anticipating business conditions to improve in the next six months increased to 18.7 percent from 17.9 percent. However, consumers expecting business conditions to worsen edged up to 9.7 percent from 9.5 percent.

The outlook for the labor market remains mixed. Those expecting more jobs to become available in the coming months increased to 16.6 percent from 15.6 percent. But those expecting fewer jobs also edged up to 17.2 percent from 16.7 percent. The proportion of consumers anticipating their incomes to increase in the months ahead improved to 19.8 percent from 18.6 percent last month.

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