WASHINGTON (Reuters) - U.S. consumer confidence improved more than expected in January to its highest level in eight months, underscoring the brightening economic outlook, even though the housing market remains on shaky ground.
The Conference Board said on Tuesday its index of consumer sentiment jumped to 60.6 in January, the highest since May, from 53.3 in December.
The index, which came in above economists' expectations for 54.3, reflected an improving outlook for employment and manufacturing, and a sense the economy is now on a firmer footing.
"We're moving in the right direction and it is consistent with other evidence that the recovery is gaining some traction," said Zach Pandl, a U.S. economist at Nomura Securities International in New York.
The government is expected to report on Friday that the economy grew at a solid 3.5 percent annual rate in the fourth quarter of last year, accelerating from the 2.6 percent pace in the July-September period.
U.S. stocks briefly pared losses on the confidence report, but disappointing corporate earnings weighed on shares. The dollar edged higher against the yen, while Treasury debt prices erased gains.
While other sectors of the economy are showing strength, recovery continues to elude the housing market.
Single-family home prices fell for a fifth straight month in November, a separate report showed, and house values were set to drop further against the backdrop of a excess supply.
The Standard & Poor's/Case-Shiller composite index of 20 metropolitan areas declined 0.5 percent from October, but the decline was not as sharp as the 0.8 percent fall expected by economists.
Compared to November last year, prices fell 1.6 percent. Despite a slight improvement in home sales, prices were likely to continue their downward spiral through the year, economists said.
OVERSUPPLY OF HOUSES
"Given a pipeline of distressed properties that is at least two years of supply, the downward pressure on prices will be with us through 2011 even if we see some improvement in housing demand," said Yelena Shulyatyeva, an economist at BNP Paribas in New York.
Sixteen of the 20 cities surveyed showed annual price falls in November, while 19 of 20 cities showed monthly drops.
"A double-dip could be confirmed before Spring," said David Blitzer, chairman of the index committee at S&P. Blitzer defined a double-dip as both the 10 and 20-city composite indices setting new post-peak lows.
Economists worry a sustained decline in house prices could impact consumer sentiment, but remain optimistic that this would be offset by the strengthening labor market.
The Conference Board's expectations index climbed to 80.3 in January, also the highest since May, from 72.3 in December. The present situation index increased to 31.0, the highest since November 2008, from 24.9.
"Consumers rated business and labor market conditions more favorably and expressed greater confidence that the economy will continue to expand and generate more jobs in the months ahead," Lynn Franco, director of The Conference Board Consumer Research Center, said.
Consumers' labor market assessment improved. The "jobs hard to get" index declined to 43.4 percent in January from 46.0 last month, while the "jobs plentiful" index rose to 5.2 percent from 4.2 percent.
But consumers' expectations for inflation in the coming 12 months rose to the highest since July 2009, a potentially worrying sign for the economy. One-year inflation expectations rose to 5.5 percent in January, matching the level in July 2009, from 5.3 percent in December.
(Reporting by Lucia Mutikani, Wanfeng Zhou and Corbett Daly, Editing by Chizu Nomiyama)
