U.S. confidence rising as economic gloom abates

U.S. consumers felt much more upbeat about the economy in April, a month when the nation's 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 is on a slow path to recovery on the back of a huge federal economic stimulus package and the Federal Reserve's efforts to prop up the banking sector.

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.

That was the highest since September 2008, when the collapse of investment bank Lehman Brothers set in train a crisis that rocked the financial system and pushed the economy into an even deeper downturn.

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 Michigan sentiment survey was attributed to a favorable assessment of U.S. President Barack Obama's stimulus spending, said Richard Curtin, the director of the survey.

The survey found that 65 percent of consumers thought the stimulus would improve the national economy.

The improvement was concentrated in expectations for the future, especially the longer-term outlook for the economy, Curtin said.

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.

The index remains below the 50 level that separates contraction from expansion, but reached 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.

Other data on Friday showed new orders still were depressed as of March.

The Commerce Department said orders received by U.S. factories fell in March for the seventh time in eight months.

Orders dropped by 0.9 percent in March after a revised rise of 0.7 percent in February, taking the net result for the two months to a decrease of 0.2 percent.

(Additional reporting by Richard Leong and Steven Johnson in New York and Lisa Lambert in Washington; Editing by Andrea Ricci)