U.S. consumer sentiment improved in early May as optimism about jobs reduced the pinch from high gasoline and food prices, a survey released on Friday showed.

But the brighter employment picture did not erase consumers' gloom about the outlook for their personal finances and their caution on spending.

The Thomson Reuters/University of Michigan's survey of consumers showed the preliminary May reading on the overall index came in at 72.4, its highest since February, up from 69.8 in April.

It was above the median forecast of 70.0 among economists polled by Reuters in the wake of last week's U.S. government data showing a 244,000 increase in U.S. payrolls in April, the biggest one-month increase in 11 months.

These impressive job gains were mirrored in consumers' evaluations of their personal finances, but those favorable changes were completely offset by rising prices, said Richard Curtin, director of the survey, in a statement.

The survey's gauge of consumer expectations rose to 67.4, the highest in three months. It was above April's 61.6 and a predicted reading of 61.8.

One-third of consumers surveyed expect the economy would improve during the year ahead, up from one-fourth in April.

But the survey's barometer of current economic conditions fell to 80.2, the lowest since October. It came in below the 82.5 figure in April and a forecast of 82.8.

The weaker current outlook reflects bleak expectations on income and prices. Just 21 percent of survey respondents expected to be better off when asked about their financial prospects for the year ahead, the same percentage recorded at the survey's low point in 2008.

More consumers than ever before in the long history of the surveys expected a declining inflation-adjusted income in May, Curtin said. Twin problems confront consumers: lower income and higher price expectations.

The survey's one-year inflation expectation fell to 4.4 percent from 4.6 percent in April, while the survey's five-to-10-year inflation outlook edged up to 3.0 percent from 2.9 percent in April.

The easing of inflation expectations was helped by falling gas price expectations in early May, Curtin said.

The national average for regular gasoline was $4 a gallon on May 6, within striking distance of the record high of $4.11 on July 2008, according to the Lundberg Survey. The recent drop in oil to below $100 a barrel should result in lower gasoline prices, analysts said.

Until relief from lower gasoline prices materializes, consumers will likely be cautious in making big purchases, which would curb overall economic growth.

The survey's gauge on buying conditions for durable items fell to 124 in early May, down from 133 in April and the lowest level since October.

The survey also showed the killing of al Qaeda leader Osama bin Laden had no impact on consumers' expectations of their own finances or for the overall economy.

(Editing by Padraic Cassidy)