U.S. consumer sentiment unexpectedly improved in January as consumers believed Washington's deal to avert the fiscal-cliff situation at the start of the year was a good sign for the economy, the University of Michigan reported Friday. The university's final January reading on consumer sentiment rose to 73.8 from 72.9 the previous month, surpassing economist forecasts for 71.5. It also was an improvement from early January's 71.3 preliminary figure, which had been the lowest level in more than a year. Survey interviews for the sentiment report were conducted before data earlier this week showed the U.S. economy unexpectedly contracted in the fourth quarter of last year. The deal reached in Washington on January 1 averted the full impact of sharp tax increases and steep government spending cuts, but taxes did increase for many Americans. “The payroll tax increase has had a significant impact on spending among lower-income households," survey director Richard Curtin said in a statement. Politicians still face a round of budget decisions in the first half of this year, including large automatic federal spending cuts that are looming in March. While the recent negative gross domestic product (GDP) reading is unlikely to cause a significant downturn among consumers, the spending cuts that are set for next month are “a more plausible candidate," said Curtin. Economists closely watch consumer-confidence indexes for clues on consumer spending, which accounts for about 70 percent of U.S. economic activity.
