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, the Commerce Department said Friday. 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 foster spending, economists said.

"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."

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, after a 0.5 percent advance in June. Purchases of nondurable goods, which include fuel and clothing, fell 0.2 percent.

Prices tied to consumer spending rose 1.6 percent in the year ended July, the same as in the prior month. Federal Reserve policymakers aim for price increases of 2 percent a year.

The core prices category, which excludes fuel and food, increased 0.1 percent in July from the prior month and was up 1.5 percent from a year ago.

Williams-Sonoma Inc. and Guess Inc. are among merchants coping with a retail slump that has them relying on sales and other promotions to drive customer traffic.

At Ross Stores Inc., a discount retailer based in Pleasanton, Calif., traffic is flat and the number of transactions hasn't increased from a year ago. Consumers continue to be "under pressure," President and Chief Operating Officer Michael O'Sullivan said.

"It's pretty apparent that the low- to moderate-income customer is struggling," Sullivan said during an earnings call Aug. 21. "We don't see a lot of evidence that that's going to change in the back half. We could be wrong but we don't see a lot of evidence for that, and we expect the environment to remain pretty promotional."

A second economic report released Friday showed U.S. consumer confidence rising in August, driven by greater optimism about jobs. Yet the increase largely occurred among higher-income groups.

The University of Michigan said Friday that its index of consumer sentiment rose to 82.5 from 81.8 in July. The August level is only slightly higher than it was a year ago.

"The main driver of consumer confidence is the job market, and that's improving," said Michael Carey, chief economist for North America at Credit Agricole CIB in New York. "You're going to continue to see payroll gains, and some of those people who were not fully employed" will return to the market, providing "a boost to overall labor income."

Consumers have sent mixed signals in recent months. The Michigan index has fluctuated between 80 and 82.5 since December. But a measure of consumer confidence by the Conference Board rose this month to nearly a seven-year high.

Nearly 60 percent of households in the top third of income earners say they are financially better off this month, the Michigan survey found, compared with only 36 percent in the bottom two-thirds. And nearly a quarter of households in the top third said they were wealthier, likely because of stock market gains, compared with just 2 percent in the bottom two-thirds.

"The stability in consumer expectations during the past nine months has helped to insulate the economy from much larger swings in business investments," said Richard Curtin, an economist at the University of Michigan and director of the survey. "At the same time, the problem is that confidence has been unable to rise above those modestly positive levels."

Information for this article was contributed by Lorraine Woellert, Chris Middleton and Michelle Jamrisko of Bloomberg News and by Christopher S. Rugaber of The Associated Press.

Business on 08/30/2014