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Spending Falters, but Consumer Confidence Reaches a 7-Year High

Consumer spending fell in July for the first time in six months, but a measure of confidence among households hit a seven-year high in August, suggesting the retrenchment would be temporary.

A third report on Friday showed a sharp acceleration in factory activity in the Midwest this month, a further sign that the economy remains on solid ground.

“The weakness in spending will quickly subside this fall” as momentum builds from promising signs like the surging stock market, rising home prices and an improving job market, said Michael Woolfolk, global markets strategist at BNY Mellon in New York.

Consumer spending, which accounts for more than two-thirds of economic activity in the United States, dipped 0.1 percent last month after rising 0.4 percent in June, the Commerce Department said. Economists had expected a 0.2 percent gain. When adjusted for inflation, it fell 0.2 percent.

The weakness in spending prompted some economists to lower their forecasts for third-quarter economic growth. Goldman Sachs cut its projection by two-tenths of a percentage point to a 3.1 percent annual rate. Macroeconomic Advisers cut its forecast by a similar amount, taking it down to 2.9 percent.

But it also left inflation muted in July, giving the Federal Reserve room to keep interest rates near zero for some time.

Consumer prices edged up 0.1 percent, the smallest rise since February, the spending report showed. In the 12 months through July, it was up just 1.6 percent. Excluding food and energy, prices also rose 0.1 percent, with the 12-month reading holding at 1.5 percent. The Fed targets inflation of 2 percent.

Over all, many economists expect another relatively sturdy quarter given the rise in confidence, a strengthening labor market, and gains in manufacturing and business spending. Housing and government spending are also improving.

Two such examples came on Friday. The Thomson Reuters/University of Michigan’s consumer sentiment index increased to 82.5 in August, the highest level since July 2007, from 81.8 in July. The Institute for Supply Management-Chicago said its barometer of Midwest factory activity shot up to 64.3 this month from 52.6 in July — the biggest monthly point gain since July 1983.

“We expect growth to remain on a firmer trajectory as improving economic fundamentals continue to reassert themselves,” said Gennadiy Goldberg, an economist at TD Securities in New York.

The sluggish consumer spending may also signal hidden momentum as many households opt to save extra money from steady income gains. Income rose for a seventh straight month in July, while savings hit their highest level since December 2012.

“Consumers could be positioned to trim savings and tap credit to fuel stronger spending, although it remains to be seen,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Mich.

A version of this article appears in print on  , Section B, Page 5 of the New York edition with the headline: Spending Falters, but Consumer Confidence Reaches a 7-Year High. Order Reprints | Today’s Paper | Subscribe

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