U.S. consumer sentiment brightened in early June as an improving jobs market offset the effect of high gas prices, the instability in Iraq and higher interest rates, analysts said on Tuesday.
The University of Michigan's preliminary survey of consumer confidence for June showed its sentiment index rose to 95.2 from a final reading of 90.2 in May, according to sources who saw the subscription-only report, breaking a two-month decline.
Economists polled by Reuters had forecast a fall to 89.9 as record-high gasoline prices and geopolitical concerns were expected to have offset some of the optimism over the improvement in the labor market.
"The data was a bit of a surprise. One, because it was stronger than expected and two, because it was stronger than the (Investors Business Daily) data, which it seems to track and perhaps inconsistent with the overall environment," said Alan Ruskin, research director at 4CAST Ltd in New York.
"We've been looking at gas prices increasing, interest rates on the rise and equities tracking sideways, and the political situation in Iraq far from calm. So none of that bodes particularly well for consumer expectations but nonetheless we have seen an increase," he said.
The expectations index rose to 86.9 in June from 81.6 in May, most likely in line with the dramatic pick-up in the jobs market over the past few months, while the current conditions component rose to 108.1 from 103.6, its best since January.
"The rebound in hiring over the past three months is finally affecting consumer attitudes about the economy. However, the improvement in sentiment has been relatively sluggish," said Steven Wood, economist at Insight Economics.
"Although sentiment remains well below its levels of the late 1990's, further job gains will push it higher," he said.
Other measures of confidence, which some analysts use as a proxy to determine future spending patterns, had shown a marked decline in sentiment as high energy prices squeezed household budgets.
ABC News and Money Magazine said last week its Consumer Comfort Index fell for the third week in a row, as both gasoline and food prices continued to rise.
Meanwhile, U.S. credit counselor Cambridge Credit Counseling recently reported that over half of the 1,000 adults it surveyed in late May said they believed gas prices would force them to make sacrifices or curb spending.