The Conference Board said its consumer confidence index rose to 96.8, following a dip in December to a revised reading of 91.7.
The rise in the index, while sizable, was lower than the expectations of analysts, who had forecast a reading of 99.0.
The index was last this high in July 2002 when it reached 97.4.
"Growing optimism about the overall health of the economy continues to bolster consumers' short-term outlook," said Lynn Franco, research director for the New York-based group. "But consumers' assessment of current conditions, which strongly hinges on improvements in the labor market, remains both weak and volatile."
The confidence reading is followed closely because consumer spending accounts for two-thirds of the economy. Consumers who feel more upbeat about the economy are likely to spend more, while those who remain pessimistic may curb their purchases.
"Consumer expectation about how good the economy and jobs are going to be in 2004, that's what picked up a little bit here," Conference Board economist Ken Goldstein told CBS Radio News.
The monthly index reflects consumer perceptions of the current economy as well as their outlook for the next six months.
"You can read into what the consumers are saying here in January, that despite the very meager job growth in December, their expectation is that that's not going to continue, that we're going to get stronger job growth," said Goldstein
In January, a sub-index measuring consumers' assessment of current conditions rose to 80.0 from 74.3 in December. Those describing the present business climate as good rose to 22.0 percent, up from 18.6 percent in the previous month.
But that was tempered by lingering doubts about jobs. Those who said jobs are hard to get declined to 31.4 percent from 32.4 percent. But the number who said jobs are plentiful also slipped to 12.4 percent from 12.6 percent.
At the same time, Americans are increasingly optimistic in their expectations for the economy over the next six months. The gauge measuring outlook rose to 108.1 in January, up from 103.3 in December.
Those who say business conditions are likely to improve in the next half year rose to 27.8 percent from 26.7 percent. The number who expect conditions to worsen declined to 6.5 percent from 8.1 percent.
The outlook on the job market also improved, with those who expect more jobs in the next six months rising to 22.2 percent from 21.6 percent in December.
However, the number of consumers who expect that their own incomes will increase declined to 18.9 percent from 21.5 percent.