Consumer sentiment fell in early June to a six-month low on worries about deterioration in the jobs market and Europe's debt crisis, a survey released on Friday showed.

Americans downgraded their economic outlook after their confidence improved in May to its highest level since October 2007.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment fell to 74.1 in June from to 79.3 in May, falling short of the 77.5 reading predicted by economists recently polled by Reuters.

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This was the weakest reading since 69.9 in December.

"Income losses were reported by nearly one-third of all households in early June and the news reaching consumers about job prospects turned negative for the first time since late 2011," survey director Richard Curtin said in a statement.

"In addition, a small but rising number of consumers reported their concerns about the fallout from Europe, the most that mentioned the potential domestic impact from an international crisis since the Asian flu in 1998," he said.

Consumer sentiment is seen as a predictor of consumer spending, which accounts for roughly two-thirds of the U.S. economy.

If consumer confidence stabilizes at this level, personal spending is still on track to grow at a 2.3 percent rate in 2012, Curtin said.

This is consistent with a median forecast of a 2.2 percent annualized growth rate in U.S. gross domestic product this year, according to economists polled earlier this month by Reuters.

Economists have warned they might downgrade their U.S. GDP outlook, as there has been data pointing to a pullback in consumer spending. On Wednesday, the government reported retail sales fell for a second straight month after steady growth in the first quarter.

Renewed concerns about jobs and problems in Europe undermined consumers' current and future outlook on the economy.

"Weaker labor market data are posing a threat to consumer confidence and sentiment, particularly if what we have seen represents, at least in part, fundamental erosion rather than solely payback from weather-related strength over the winter," Joshua Shapiro, chief U.S. economist at MFR, Inc. wrote in a research note.

Earlier this month, the U.S. Labor Department said non-farm payrolls grew 69,000 in May, the smallest gain in a year, while the jobless rate rose for the first time in a year to 8.2 percent.

THUMBS DOWN ON GOVERNMENT POLICIES

Another factor hurting confidence is dissatisfaction with the government's economic policies, Curtin said.

The latest survey showed only one in 10 consumers rated current policies favorably in early June, though confidence in policies was still above the "abysmal" level seen last August at the height of the federal debt ceiling fight in Washington.

"A rising number of complaints about the government's policies were voiced when consumers were asked about the economic news they had heard in early June," Curtin said.

The survey's barometer of current economic conditions fell to 82.1 in early June, the lowest level in six months and below the 85.3 figure predicted by analysts. It stood at 87.2 at the end of May, which was the highest since January 2008.

The survey's gauge of consumer expectations declined to 68.9 in early June, the lowest since December and falling short of a median forecast of 71.8. It was 74.3 at the end of May, which was the highest since July 2007.

This less optimistic outlook in early June coupled with a drop in the likelihood that families will buy cars, refrigerators and other big-ticket items, the survey showed.

Its index on buying conditions for durables fell to 125, matching the level seen in March, from 132 in May.

The survey's one-year inflation expectation among consumers was unchanged at 3.0 percent, but its five-to-10-year inflation outlook rebounded to 2.9 percent in early June after falling to 2.7 percent in May.

"Despite the recent rise, long term inflation expectations are still below the 3.0 percent recorded three months ago as well as last June, with the data providing no evidence of a break in its overall stability," Curtin said.

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