Consumer confidence rose to a four-month high in January, helped by optimism that President Barack Obama's new administration might bring relief from a year-long recession, a survey showed on Friday.
However, the improvement was less than economists had expected and sentiment remained weak overall,
The Reuters/University of Michigan Surveys of Consumers said its final index reading of confidence for January rose to 61.2 from December's 60.1.
The final January reading is down slightly from the preliminary result earlier in the month of 61.9 and overall it remains in depressed territory, reflecting the deepening recession in the world's largest economy.
Consumers are panicked and confidence is shattered. Consumers may be less worried in January than December, perhaps because of lower gasoline prices and a more stable stock market, said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.
Stocks briefly turned negative after the sentiment data, which only highlighted the headwinds facing the consumer-driven economy.
Government bonds -- which generally benefit from signs of economic weakness -- pared gains after the report. Bonds were on the back-foot after government data showed the economy's contraction during the fourth quarter was much less severe than expected.
Economists had expected a reading of 61.9, according to the median of 63 forecasts in a Reuters poll.
The report showed inflation expectations rose, which might be good news considering that economists see a deflationary spiral lower in prices, wages and business activity as a distinct possibility given the unhealthy state of the economy.
One-year inflation expectations rose to 2.2 percent from 1.7 percent in December. Five-year inflation expectations increased to 2.9 percent from 2.6 percent.
Despite the increase in the overall sentiment index, consumers rated their current economic conditions worse than the month before, with this gauge falling to 66.5 from 69.5.
The University of Michigan confidence index dates back to 1952 and is still mired near the record low of 51.7 hit in May 1980.
Nearly all consumers now anticipate the deepest and longest recession in the post-World War Two era, but consumers do not expect the economy to sink into a 1930s-style depression, the Surveys of Consumers said.
The report noted the index had been improving from November's 28-year low, the month of Obama's election, and that consumer confidence often gains after big political changes.
It added: These gains may be fleeting since the electoral promise may be trumped by the ongoing drumbeat of bleak economic news.