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Consumer spending cools unexpectedly

Consumer spending in the U.S. unexpectedly dropped in September as incomes rose at the slowest pace of the year, indicating the economy will have difficulty sustaining a pickup in growth into the end of the year.

Expenditures decreased 0.2 percent last month, weaker than any economist projected in a Bloomberg survey, after rising 0.5 percent in August, Commerce Department figures showed today in Washington. Incomes increased 0.2 percent, the smallest gain since December.

Wages that are barely outstripping the pace of inflation may be restraining spending by some households, while slower increases in home prices and volatility in the stock market is also limiting wealth gains. Continued improvement in employment will be needed to further boost confidence and give consumers the means to spend at companies such as Kroger Co. (KR), the largest U.S. grocery-store chain.

“The decline was on the heels of a pretty outsized gain in August so some payback should have been expected,” though the size of the pullback was a surprise, said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York and the best forecaster of spending during the last two years according to data compiled by Bloomberg. “The quarter ended on relatively soft footing from a spending perspective, however consumer fundamentals remain fairly sound.”

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