US consumer confidence rose in May to the highest level since October 2007 as prices at the gas pump became less of a drag on household budgets. The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 79.3 from 76.4 the prior month. The gauge was projected to hold at the preliminary reading of 77.8, according to the median forecast of economists surveyed by Bloomberg News. Cheaper petrol and an improving housing market may help sustain consumers\' spirits in the face of slower job growth and slumping stock prices. The gain in confidence may signal Americans are more inclined to step up their purchases, which increased in the first quarter at the fastest pace in more than a year. \"Gas prices have fallen, and that\'s outweighing the fact that the labor market has been of some concern,\" Erik Johnson, a US economist at IHS Global Insight in Lexington, Massachusetts, said before the report. \"We see consumer spending holding up.\"Estimates for the confidence measure ranged from 76 to 79, according to the Bloomberg survey of 60 economists. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009. The Michigan survey\'s index of current conditions, which reflects Americans\' perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, rose to 87.2 from 82.9 the prior month.The index of consumer expectations six months from now, which more closely projects the direction of consumer spending, increased to 74.3, the highest since July 2007, from 72.3 in April. The unemployment rate slid to 8.1 per cent in April, the lowest level since January 2009, Labour Department figures showed this month. Employers added 115,000 workers to payrolls, the fewest since October, according to the data. Economists project payroll growth expanded by about 150,000 this month, according to the median estimate in a Bloomberg survey. The Labor Department will issue its May employment report on June 1. Labour market progress would help rouse confidence after concerns about Europe\'s debt crisis weighed on the US stock market. \"The economy and consumer sentiment remains fragile and we can foresee the possibility of more turbulence from outside events as we move through the year,\" Stuart Brown, vice president and chief financial officer of Red Robin Gourmet Burgers Inc., said during a May 16 earnings call. Consumers in yesterday\'s confidence report said they expect an inflation rate of 3 per cent over the next 12 months. Treasury says Europe crisis poses risk The Treasury Department said yesterday that the growing European crisis poses a threat to the recovery in the US through financial and trade ties. \"The deeper crisis now facing Europe is a significant risk to the US outlook as our recovery remains vulnerable to events abroad,\" the Treasury said in a semi-annual report to Congress. \"A tightening of financial markets in Europe can adversely impact the willingness of US banks to lend and invest. Our trade connections with Europe are broad and deep.\"