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Consumer spending dip reflects housing slump

WASHINGTON - Shoppers took a break in June, boosting their spending at the slowest pace in nine months as high gasoline prices and fallout from the housing slump made people think twice about buying.

The Commerce Department reported Tuesday that consumer spending edged up by just 0.1 percent. That marked a pullback from May's brisk 0.6 percent rise and was the smallest increase since last September. Incomes, the fuel for future spending, rose 0.4 percent for a second month in a row.

However, a more forward-looking report suggested that consumers were in a much better frame of mind in July. Their confidence shot up to a six-year high.

The Conference Board said its Consumer Confidence Index jumped to 112.6 in July from a reading of 105.3 in June. The fresh survey of consumer attitudes, though, was taken before last week's stock market meltdown.

Another report from the department showed that construction spending dipped 0.3 percent in June, restrained mostly by cutbacks in home building and projects by the federal government. It was the weakest showing since a 0.6 percent drop in January and fell short of analysts' forecasts for a modest 0.2 percent rise.

The weakness in overall construction spending came even as construction by private builders on commercial structures, such as offices, hotels and motels and schools, climbed to all-time highs. Spending by state and local governments on construction projects also rose to record highs.

The report underscored fallout from the sour housing market. Private builders cut spending on residential construction 0.7 percent in June, marking the 16th straight month in which this spending declined. The other soft spot was a 1.1 percent drop in spending by the federal government.

Fresh fears about the housing market sent stocks tumbling. The Dow Jones industrials lost 146.32 points to close at 13,211.99.

On the consumer front, the personal spending and income figures aren't adjusted for inflation. The consumer spending figure matched economists' expectation, while income growth was just shy of analysts' forecasts for a 0.5 percent increase.

'Households had the money to spend, but they just didn't do it,' said Joel Naroff of Naroff Economic Advisors.

Consumer spending plays a major role in shaping overall economic activity. In the first three months of this year, it was consumers' brisk spending that prevented the economy from stalling. However, in the April-to-June quarter, consumers were much more subdued. They boosted spending at a pace of just 1.3 percent, the slowest since the final quarter of 2005, the government reported last week.

'The consumer has lost momentum,' said Nigel Gault, economist at Global Insight.

Even so, the national economy managed to stage a rebound, growing at a solid 3.4 percent pace in the second quarter, thanks to a revival in business investment, stronger sales of U.S. exports overseas and increased government spending. The housing slump continued to be a drag on the economy but not as much as it has been in previous quarters.

An inflation measure tied to the income and spending report showed 'core' prices - excluding food and energy - moderated slightly. These prices rose 1.9 percent over the 12 months ending in June. That was a small improvement from the 2 percent annual gain for May.