July 31, 2012 at 8:47 AM ET
Concerns about wages and the job market prompted Americans to spend less in July, in a worrisome sign for the economy.
The Commerce Department said Tuesday that personal outlays slipped 0.1 percent, inflation-adjusted, in July, the first decline in consumer spending on that basis since August 2011. Before adjusting for inflation, spending was flat.
Consumer spending accounts for about 70 percent of the nation's economic activity, so any sign of weakness is a red flag for growth, which already has shown signs of slowing. It's also a red flag for President Barack Obama as he tries for second term as president against Republican challenger Mitt Romney.
Last week, the government's initial estimate for economic activity in the second quarter came in at a 1.5 percent pace, slower than the 2.0 percent pace in the first quarter and the 4.1 percent rate in the fourth quarter. Much of the slowdown has come from declining consumer spending amid worries about jobs, wages, the European debt crisis and Washington gridlock.
Household income rose in June by 0.5 percent -- the most in three months -- although consumers socked away part of the extra cash by saving more.
Analysts had expected a gain of 0.4 percent. After tax income climbed 0.3 percent in June when accounting for higher prices.
With price-adjusted incomes rising in June and consumption falling, the saving rate for households rose to 4.4 percent, its highest level in a year.
A report on Friday is expected to show the jobless rate holding at 8.2 percent in July. It has been above 8 percent since February 2009 - nearly all of Obama's time in office so far.
On Tuesday, policymakers at the Federal Reserve were to start a two-day meeting where Fed Chairman Ben Bernanke has said they would be looking for signs of any stall in the recovery of the labor market.
No major policy announcement is expected although some economists think the Fed this week could push further into the future its conditional pledge to keep rates near zero through late 2014.
Inflation pressures appear to be muted.
A price index for personal spending rose 0.1 percent in June. In the 12 months through June, the PCE index was up 1.5 percent, matching May's reading which was the lowest since January 2011 and below the Fed's target of 2 percent.
So-called core PCE, which removes volatile food and energy prices, rose 1.8 percent in the 12 months through June.
Reuters contributed to this report.
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