(Bloomberg) -- U.S. consumer sentiment exceeded analyst estimates as low unemployment and growing incomes kept Americans in an upbeat mood, though the outlook soured amid concern that the labor market will soften.

The University of Michigan's preliminary December sentiment index was unchanged from November at 97.5 and compares with the median estimate of 97 in a Bloomberg survey of economists, according to data released Friday. The gauge of current conditions increased to 115.2 from 112.3 while the expectations index dipped two points to 86.1, the lowest in a year.

Key Insights

  • Even though the outlook weakened, confidence remains fairly solid, with support from strong hiring, improving wages and cheaper fuel costs. That bodes well for the holiday shopping season and for this quarter’s growth in consumer spending, the biggest part of the economy.
  • A measure of buying conditions for long-lasting goods rose six points to 167, the highest since March. Higher incomes have helped offset the absence of favorable discounting on homes and cars amid rising interest rates, according to the Michigan survey.
  • The balance of opinion turned negative for the first time in 18 months when consumers were asked about the unemployment rate in the year ahead. Labor Department data released Friday showed November jobs and wages rose by less than forecast, signaling some cooling in a still-healthy labor market.
  • Consumers anticipate slower gains in prices, adding to signs that inflation is unlikely to flare up above the Federal Reserve's goal.

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  • Households expected a 2.4 percent increase in incomes in the year ahead, compared with 2.5 percent in November. That's the highest two-month average since 2007.
  • Inflation expectations for the year ahead slipped to 2.7 percent from 2.8 percent in the prior month, while the inflation rate over the next five to 10 years was seen at 2.4 percent compared with 2.6 percent in the November survey.
  • “Rising prices and interest rates will not cause substantial cutbacks in spending as long as job and income growth remain strong,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.
  • Interviews for the preliminary December report were conducted from Nov. 24 to Dec. 5.

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