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US consumer sentiment rises to 7-year high on greater optimism about income, spending

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WASHINGTON — Greater optimism about income growth and future spending pushed U.S. consumer sentiment to a fresh 7-year high in November.

The University of Michigan said Wednesday that its index of consumer sentiment rose to 88.8 in November from 86.9 in October. That's the highest since July 2007, five months before the Great Recession began.

The report adds to a mixed picture of U.S. consumers heading into the holiday shopping season. A separate measure of consumer confidence, released Tuesday by the Conference Board, fell sharply after reaching its own 7-year high last month. And Americans are spending at a sluggish pace despite a pickup in job creation this year.

PHOTO: FILE - In this Oct. 28, 2014, file photo, customers shop at the Century 21 Department Store in Philadelphia. Greater optimism about income growth and future spending pushed U.S. consumer sentiment to a fresh 7-year high in November. (AP Photo/Matt Rourke, File)
FILE - In this Oct. 28, 2014, file photo, customers shop at the Century 21 Department Store in Philadelphia. Greater optimism about income growth and future spending pushed U.S. consumer sentiment to a fresh 7-year high in November. (AP Photo/Matt Rourke, File)

Consumers are more optimistic that their incomes will increase, the Michigan survey found, but their expectations are modest: Respondents expect their incomes will increase 1.1 percent over the next 12 months. That's the most in six years, though still not enough to keep up with inflation.

Yet the Michigan survey also found other positive signs. Consumers said they were more likely to spend on big-ticket items such as appliances and autos than at any time since the recession began. And Americans expect recent steady job gains to continue and the unemployment rate to decline further.

"Consumer confidence remains on a gradual uptrend," said Jim Baird, chief investment officer for Plante Moran Financial Advisers. "Gasoline prices are down, putting extra discretionary spending money in their pockets, while investment markets are higher year-to-date, raising portfolio values."

Yet rising confidence hasn't yet translated into big gains in spending. Consumer spending rose just 0.2 percent in October, the Commerce Department said Wednesday, after a flat reading in September. That could limit growth in the October-December quarter. Economists forecast the economy will expand at an annual rate of 2.5 percent in the fourth quarter, down from an average of 4.25 percent in the preceding six months.

Spending has been sluggish in part because income gains have been modest: Americans' incomes rose 0.2 percent in October, matching September's increase.

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