BUSINESS
08/02/2011 09:05 am ET Updated Oct 02, 2011

Consumer Spending Falls For First Time In Nearly Two Years, Incomes Barely Rise

WASHINGTON (Lucia Mutikani) - Consumer spending unexpectedly fell in June to post the first decline in nearly two years as incomes barely rose, a government report showed, suggesting economic growth could remain subdued in the third quarter.

The Commerce Department said on Tuesday consumer spending slipped 0.2 percent, the first drop since September 2009, after edging up 0.1 percent in May.

Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.2 percent.

When adjusted for inflation, spending was flat in June after easing 0.1 percent the prior month. The decline came even as gasoline prices retreated from their peak just above $4 a gallon in early May and suggested the much-anticipated bounce back growth in the third quarter would lack vigor.

Consumer spending barely grew in the second quarter, inching up at an annual rate of only 0.1 percent -- the weakest pace since the end of the 2007-09 recession. Spending increased at a 2.1 percent rate in the first quarter.

That contributed to hold the economy to an anemic growth pace of 1.3 percent in the second quarter.

The weak spending in June also reflected tepid income growth after employment growth ground to a near halt in June, with nonfarm payrolls rising only 18,000. Income ticked up 0.1 percent, the smallest increase since November, after rising 0.2 percent in May.

Disposable income ticked up 0.1 percent, also the smallest increase since November. But when adjusted for inflation, disposable income rose 0.3 percent. With real disposable income outpacing spending, savings rose to $620.6 billion from $581.7 billion in May.

(Editing by Andrea Ricci)

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