The lowest consumer inflation expectations since the 1950s lifted U.S. consumer sentiment in November, a boost that could mean holiday retail sales will be better than many have feared, according to a University of Michigan study.

The report, released on Friday, rounded out the details of the University's consumer data, released directly to subscribers on Wednesday. It showed the sentiment index rose for a second straight month in November, to 83.9 from 82.7 in October. 

Economists watch consumer confidence as an early barometer of consumer spending, which drives two-thirds of economic activity. Analysts have paid particular attention to confidence since the Sept. 11 attacks on the United States in an effort to forecast spending in the critical holiday period ahead. 

Despite mounting optimism for an economic recovery next year, the November University of Michigan report showed the weakest consumer income growth since the last U.S. recession during 1990-91, pointing to sluggish spending in months ahead. 

"If we go back to what happened before Sept. 11, there was plenty of pessimism to weaken holiday sales and that pessimism still remains," said Richard Curtin, director of the University's Surveys of Consumers, in an interview. 

"It's going to be a very poor holiday season on the historic record, but not as bleak as many had feared following the attacks," Curtin said. 

The Michigan index, which hit a record of 112.0 in early 2000, read 107.6 a year ago and has been mostly in decline since then, registering a near eight-year low of 81.8 in September. 

A stabilization in the index over the last two months as consumers have mostly shrugged off the Sept. 11 attacks and initial fears of bioterrorism has helped boost hopes that a widely expected U.S. recession will be shallow and short-lived. 

Rock-bottom consumer inflation expectations for the year ahead -- a mere 0.4 percent -- made consumers feel more upbeat about their personal finances during the month in the face of persistent concerns over incomes and job security. 

Curtin warned the index could fall again if those rosy price expectations are threatened. 

"If inflation even returned to where it was, around 2.5 percent to 3 percent, that could significantly harm people's financial prospects and it could cause some decline in the overall sentiment index," he said. 

Consumer inflation is currently running at a 2.1 percent rate year-over-year, according to the October consumer price index, the broadest measure of prices. 

As incomes fall and unemployment rises, consumers will turn to incentives -- like zero-interest financing for automobiles that also helped to boost the November sentiment index -- and other shopping bargains. 

"Consumers expected low prices on a wide range of products, and holiday sales will be brightest among retailers that offer deep discounts," Curtin said. 

Retail sales surged ahead at a record 7.1 percent pace in October, but the gain was led mainly by a record surge in auto sales as consumers took advantage of cheap financing. Excluding autos, sales grew by 1.0 percent in October after a 1.5 percent fall in September. 

The report added that appliances, furniture and home electronics, as well as other non-durables and clothing, were likely to suffer the most in the spending slowdown.