US consumers' mood brightened in early December, which may bode well for retailers in the key holiday shopping season, a survey showed last week.
But in other reports, wholesale prices rose unexpectedly, spurred by rising energy costs, while the United States ran up a larger than expected budget deficit in November.
The University of Michigan's December consumer sentiment survey rose to 95.7, its highest since August. Wall Street had forecast the index, a closely-watched measure of consumer sentiment, at 93.5 against 92.8 in November.
"It seems we have a healthy though not tremendous holiday shopping season ahead of us," said Steve Gallagher, economist at SG Cowen Securities.
The current conditions index rose to 106.8 from 104.7 and the expectations index rose to 88.8 from 85.2.
"The expectations index is now at a five-month high but has been largely trendless over the past year. Historically, its current level has been consistent with real consumers' spending growth of 3.5 per cent to four per cent," said Ian Shepherdson, chief US economist at High Frequency Economics.
Consumers were buoyed by falling gasoline prices, an improvement in the labour market and a brisk stock market rally. The scars of a divisive presidential election have also faded.
"People have reacted to the fact oil prices have come down" and expect things to get better, said Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina.
None of Friday's reports had much impact on financial markets, which are focusing on tomorrow's meeting of the monetary policy-setting Federal Open Market Committee.
The US central bank is expected to raise overnight borrowing costs a quarter percentage point to 2.25 per cent as it seeks to stay ahead of the inflation curve.
Treasury bond prices rose marginally, taking 10-year yields down to 4.15 per cent.
The Dow Jones industrial average ended down 9.6 points while the dollar strengthened, changing hands against the euro at $1.3224 late in the day. The US government posted a $57.8 billion budget shortfall in November, the Treasury Department said, above Wall Street's forecast of $55 billion.
The deficit so far in the 2005 budget year reached $115.2 billion against $112.5 billion in the first two months of fiscal 2004. For the year the deficit is forecast to fall.
"Continued growth in the economy, along with some budget restraint, should narrow the deficit this year. Most of the improvement is because tax revenues are rising again," said Stephen Wood, economist at Insight Economics.
Earlier, the Labor Department said US producer prices rose 0.5 per cent last month as energy costs mounted, topping forecasts for a 0.2 per cent rise and boosting the Fed's case for higher interest rates to keep inflation at bay.
Excluding volatile food and energy sectors, the core producer price index, which measures prices received by farms, factories and refineries, rose 0.2 per cent, as forecast.
Analysts said that any near-term inflation bulge was unlikely. Still, core intermediate goods prices are up eight per cent on the year, the fastest rise since 1981.
"In the mind of the central bank, inflation is more likely to move higher next year than lower. It gives the Fed another reason to hike rates," said Cary Leahey, senior US economist at Deutsche Bank Securities in New York.
The report showed energy prices climbed 1.8 per cent, building on a hefty 6.8 per cent increase in October.
Even as gasoline prices and home heating oil costs eased, the cost of residential natural gas soared 6.2 per cent and electricity prices gained 1.2 per cent.
Although the jump in energy prices has yet to fuel a pickup in consumer prices, analysts and Fed policymakers are watching to see if producers try to pass on higher costs to consumers.
Outside of food and energy, producer prices are up just 1.9 per cent in the 12 months through November.
"If we see a pickup of core inflation from two per cent, this will motivate the Fed to abandon its measured pace (of raising rates) and become more aggressive," said Richard DeKaser, chief economist at National City Corp. in Cleveland, Ohio.