Consumer spending falls first time in 6 months

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WASHINGTON — Consumer spending in the U.S. unexpectedly dropped in July for the first time in six months, a sign households are lagging behind as wages fail to accelerate.

Household purchases decreased 0.1 percent after increasing 0.4 percent in June, Commerce Department figures showed Friday in Washington. None of the 79 economists in a Bloomberg survey projected a decrease. Incomes climbed 0.2 percent, the smallest monthly advance this year.

Consumer spending, which accounts for about 70 percent of the economy, has been held back by tight credit and meager wage growth that is barely able to keep up with inflation. A sustained labor market upswing is needed to lift earnings and help boost outlays at retailers such as Ross Stores Inc.

"It's a weak starting point for the third quarter," said Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York. "It's going to lead to a markdown in third-quarter forecasts." RBC Capital Markets is the top forecaster of personal spending over the past two years, according to data collected by Bloomberg.

Other reports Friday showed consumer sentiment unexpectedly rose in August and manufacturing in the Midwest region pickup more than projected.

The Thomson Reuters/University of Michigan final sentiment index rose to 82.5 from 81.8 in July. The median projection in a Bloomberg survey of economists called for 80 after a preliminary August reading of 79.2.

The Institute for Supply Management-Chicago Inc.'s business barometer rose to 64.3 this month from 52.6 in July. The median forecast of 44 economists in a Bloomberg survey projected the index would climb to 56.5. Readings greater than 50 signal growth.

Stocks were little changed heading into what's shaping up as the biggest monthly gain since February amid increasing speculation that global central banks will support economic growth. The Standard & Poor's 500 Index declined less than 0.1 percent to 1,996.2 at 10:28 a.m. in New York.

Projections for spending in the Bloomberg survey ranged from little changed to a 0.4 percent gain. The June reading was unrevised. The Bloomberg survey median called for incomes to rise 0.3 percent.

Purchases last month dropped 0.2 percent following a 0.2 percent June increase after adjusting for inflation, the data used to calculate gross domestic product.

Spending on durable goods, including cars and trucks, declined 0.6 percent after adjusting for inflation, following a 0.5 percent advance in June. Purchases of nondurable goods, which include fuel and clothing, fell 0.2 percent.