U.S. consumers felt much more upbeat about the economy in April, a month when the country's battered manufacturing sector also appeared to be crawling out of a deep recessionary hole, reports showed on Friday.
The news was fresh evidence that the U.S. economy may be on a slow path to recovery, helped by a huge government stimulus package and the Federal Reserve's efforts to prop up the banking sector.
The U.S. economy appears to be exiting the intensive care unit, but remains in the hospital, said Scott Anderson, senior economist at Wells Fargo Economics in Minneapolis.
April auto sales, however, struck a more somber note. A day after Chrysler LLC
But as consumer confidence rises, the willingness of Americans to consider major purchases, or to pull out the plastic, could increase as well.
The Reuters/University of Michigan survey of consumers said its final index of confidence climbed to 65.1 in April from 57.3 in March.
The improvement in consumer sentiment is encouraging -- consistent with our forecast for a gradual pickup in spending, said Michelle Meyer, an economist at Barclays Capital.
The index reached its highest since September 2008, when the collapse of investment bank Lehman Brothers Holdings, Inc
Consumers' attitudes about the economy appear to be improving. They remain very cautious, but these data suggest consumers are no longer shell-shocked, said Steven Wood, chief economist at Insight Economics in Danville, California.
Much of the gain in the consumer survey was attributed to a thumbs-up for U.S. President Barack Obama's $787 billion stimulus plan, said Richard Curtin, director of the Reuters/University of Michigan survey.
The survey also found that 65 percent of consumers thought the stimulus would improve the national economy.
Rising U.S. stock markets in April -- the Standard & Poor's 500 index <.SPX> gained 9.4 percent, its biggest monthly rise in nine years -- were also seen boosting sentiment as well as deep discounts from retailers and in the housing market that have improved buying conditions, Barclays' Meyer said.
The reports helped equities values modestly extended April's gains on Friday. The S&P 500 rose 0.5 percent or 4.7 points to 877.52, its highest closing level since Jan 9.
FOURTH STRAIGHT GAIN IN KEY FACTORY INDEX
Meanwhile, the Institute for Supply Management's closely watched index of manufacturing activity jumped to 40.1 in April from 36.3 in March.
While the index remains below 50, the level that separates contraction from expansion, it touched its highest point in six months and is riding a four-month streak of gains from December's low of 32.9.
The ISM data was meaningfully better than expected. The recovery in orders to 47.2 is particularly significant, said Alan Ruskin, chief international economist at RBS Greenwich Capital in Greenwich, Connecticut.
Most of the indicators showed a solid improvement, and even though they are still solidly in a zone associated with recession, they are nowhere near the deep recession/depression type levels feared a few months back, Ruskin said.
Many economists look at the ISM survey's new orders minus inventories as a leading indicator for factory output.
The measure turned positive in March and continued to rise in April, to its fastest rate of new orders growth versus inventories since December 2004.
Inventories have been steadily coming down. While this weighed heavily on first-quarter GDP, it could set the stage for a lasting recovery in manufacturing, said Tim Quinlan, economic analyst at Wachovia Securities.
As stockpiles are depleted, businesses have to go back to work and production can resume, he added.