Improving U.S. consumer sentiment and a big drawdown in wholesale inventories on Friday built on recent evidence that an economic recovery was picking up speed.

Shipping firm FedEx Corp added to the growing sense of economic recovery when it said profits would be higher than it had earlier expected, citing an improving economy and fuel prices.

Evidence of a durable recovery is coming in from all quarters with economic data, company earnings and big drivers of global growth like China all signaling strength ahead. Concerns about a frail jobs market continue to temper optimism about the U.S. recovery, however.

We are in a recovery, but it is a weak recovery because the consumer is still very strained on the income side, said Kurt Karl, head of economic research at Swiss Re in New York.

Chicago Federal Reserve president Charles Evans on Friday said the United States was tentatively emerging from a severe recession.

The Reuters/University of Michigan Surveys of Consumers said the preliminary reading of its consumer confidence index for September rose to 70.2, the highest since June, from 65.7 in August. This was above economists' median expectation of a reading of 67.3, according to a Reuters poll.

Sentiment is believed to correlate closely with consumer spending, and consumers may be tentatively loosening their purse strings in response.

Things look like they're looking up, but our habits have changed permanently in many ways, said Ridie Ghezzie, a librarian at Dartmouth College in Hanover, New Hampshire, while browsing in the furniture section at Macy's department store in New York.

During the year when things were really bad, we really stopped everything, and we've changed our lifestyle in ways I've almost forgotten about now -- we don't go out to dinners much anymore, Ghezzie said.

INVENTORIES FALL

Inventories at U.S. wholesalers in July fell to their lowest in nearly three years, declining for the 11th month after sharp drops in furniture and metals stocks, government data showed, suggesting consumer demand was reviving.

The Commerce Department said total wholesale inventories dropped 1.4 percent to $387.2 billion, the lowest level since September 2006, after a revised 2.1 percent decline in June. Economists had expected a 1.0 percent drop in July from June.

The data helped to give Wall Street stocks a brief boost, but shares later edged lower as crude oil prices fell. U.S. Treasury bonds, seen as a safe-haven investment in times of economic uncertainty, shrugged off the data to trade higher.

U.S. import prices jumped 2.0 percent in August as the cost of oil rose, the U.S. Labor Department said. The increase, twice what analysts had expected, was the fifth rise in the last six months. It followed a July drop of 0.7 percent.

Excluding petroleum, import prices increased a much milder 0.4 percent in August after falling 0.3 percent in July.

The U.S. government has pumped billions of dollars into the economy to help lift it from the worst downturn in decades at the same time as tax receipts have fallen considerably, leading to record deficits that have many worried about the country's long-term fiscal health.

The August budget deficit of $111.40 billion, while far smaller than the $152 billion gap forecast by economists, marked a record-matching 11 straight months of deficits.

A decline in outlays in August compared with a year earlier was partly due to calendar issues, which led some federal benefit payments to be shifted to July. August receipts also shrank, but at a slower pace than for the full fiscal year to date.

In China, industrial output for August and other economic data on Friday were a positive surprise suggesting the economy is on a solid course but not so strong that Beijing will need to hit the policy brakes any time soon.

The only weak spot in the Chinese data was trade. Exports fell 23.4 percent from a year earlier, a sharper drop than expected and accelerating from July's 23 percent fall as global demand remained frail.

Despite some economic optimism, the head of the International Monetary Fund, Dominique Strauss-Kahn said governments around the world should not put a stop to supportive economic policies given the economic crisis had not yet come to an end.

(Additional reporting by Camille Drummond; Editing by Chizu Nomiyama)

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