Consumer confidence inches up

University of Michigan survey says increase is due to pre-holiday discounts, while job outlook keeps sentiment down.

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By Julianne Pepitone, CNNMoney.com contributing writer

Describe your online shopping habits this holiday season:
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  • Iím not spending anything this year

NEW YORK (CNNMoney.com) -- Consumer confidence rose slightly this month, coming off 28-year lows thanks to cheaper oil and deep discounts during the holiday-shopping season.

Reuters/University of Michigan released its monthly survey of consumer confidence Tuesday, and the December index increased to 60.1 from November's 55.3 - better than the 58.8 expected by economists surveyed by Bloomberg.

The index was revised up from the 59.1 preliminary figure reported on Dec. 12, but the uptick is still substantially lower than the 75.7 reported in December 2007.

"It's a very minor increase, and we're still near all-time lows," said Adam York, economic analyst at Wachovia (WB, Fortune 500). "These surveys are fairly volatile in nature, and it's clear the rapidly deteriorating economic situation is pretty dire for the American consumer."

Temporary relief

Lower gas prices and deep discounts at retail stores provided temporary relief, according to the report, but absent the holiday price slashing, the index is expected to fall again next month.

"Even for those who haven't been laid off or suffered salary cuts, it's on their mind," York said. "It's a real problem for retailers."

He added that the country is likely "only halfway through what we'll see in job cuts."

Deflation concerns skyrocket

"The most significant change recorded in the December survey was the record plunge in inflation expectations," Richard Curtin, director of Reuters/University of Michigan Surveys of Consumers, said in a statement.

In fact, one in four consumers expected deflation would occur, a higher percentage than any time since the 1950s, the report said.

"We don't often take that number into strong consideration, but this shows a sharp concern," York said.

Still, the decline in gas prices and commodity prices "should start to help consumers soon," York added. "But even that wont completely offset income losses that come from a pretty bad labor market."

2009 outlook

Total consumer spending is expected to decline by 1% in 2009, with an "unusually slow recovery in 2010," Curtain said.

"The personal finances situation of consumers remained bleak," the report said, adding that "the majority reported that their finances had recently worsened."

In the December survey 75% of consumers said they expect the recession to continue throughout 2009; 70% also forecasted a rise in unemployment.

"The fourth quarter will be the worst in economic growth," York said. "While the first quarter wont be pretty, it will be better." To top of page

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