July 31 (Bloomberg) -- Personal spending in the U.S. increased in June at the slowest pace in nine months, while a gauge of inflation rose less than forecast, suggesting slower growth is easing price pressures.

The 0.1 percent rise in spending reported by the Commerce Department today, which matched economists' estimates, followed a 0.6 percent gain in May. The personal consumption expenditures index -- a price measure closely watched by the Federal Reserve -- also rose 0.1 percent, excluding food and energy.

Consumer spending, which accounts for more than two-thirds of the economy, is ceding its role as the expansion's driver as exports and business investment pick up. At the same time, more jobs and rising incomes will prevent spending from slowing even more, analysts said.

``Consumer spending is definitely a source of concern,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts, who accurately forecast both figures. ``Inflation does look very tame.''

Treasury notes pared losses after the report. The yield on the benchmark 10-year note was 4.82 percent at 9:05 a.m. in New York, compared with 4.80 percent late yesterday. The dollar was little changed and stocks rose.

In addition to near-record gasoline prices and last week's stock-market rout, consumers also have to weather falling home values. Home values in 20 U.S. cities fell the most in at least six years, according to the S&P/Case-Shiller index, which declined 2.8 percent in May from a year ago.

Taking a Break

``The consumer took a breather in June,'' said Julia Coronado, senior economist at Barclays Capital Inc. in New York, whose firm also accurately predicted spending and core inflation. Prices provide ``some comfort to the Fed, but they are going to want to see the moderation in inflation lasts for a longer period.''

Incomes rose 0.4 percent in June for a second month, today's report also showed. Income was forecast to rise 0.5 percent, according to the Bloomberg News survey median.

Employment costs rose at a faster pace in the second quarter, led by the biggest gain in spending on benefits in more than two years, the Labor Department reported separately. The employment cost index rose 0.9 percent in April through June, following a 0.8 percent gain the first three months of the year.

Economists Estimates

Economists forecast spending would rise 0.1 percent, after an originally reported 0.5 percent increase in May, according to the median of 77 estimates in the Bloomberg survey. Estimates ranged from a decline of 0.2 percent to a gain of 0.5 percent.

The report's price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, rose 0.1 percent for a fourth consecutive month. The gauge was up 1.9 percent from June 2006, the smallest increase since 2004.

Some Fed policy makers, including Ben S. Bernanke before becoming chairman, have said they'd prefer core inflation within a 1 percent to 2 percent range.

Adjusted for inflation, spending was unchanged in June, after increasing 0.2 percent the prior month, the report showed.

Because the increase in spending was smaller than the gain in incomes, the savings rate improved to 0.6 percent, from 0.4 percent the prior month.

Disposable income, or the money left over after taxes, also rose 0.4 percent for a second month. Adjusted for inflation, disposable income increased 0.3 percent.

Autos, Furniture

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, dropped 1.6 percent, the most since August. Purchases of non-durable goods were unchanged and spending on services, which account for almost 60 percent of all outlays, rose 0.2 percent.

Consumer spending rose at a 1.3 percent annual pace from April through June, a third of the previous quarter's increase and the smallest gain in more than a year, last week's report on gross domestic product showed.

The quarter ended on a bad note for automakers. June sales were the lowest in almost two years, according to industry figures. AutoNation Inc., the largest U.S. auto dealer, last month said its second-quarter revenue declined 6.8 percent.

`Big-Ticket Items'

``There is a direct link between housing and the distress it creates for the consumer around big-ticket items,'' Michael Jackson, AutoNation's chief executive officer, said in a July 26 interview from Fort Lauderdale, Florida.

Sears Holdings Corp., the biggest U.S. department-store company, and Home Depot Inc., the world's largest home- improvement chain, this month said profit will fall as declining home values hurt demand for furniture and building materials.

The housing market will ``remain challenging for the rest of 2007 and into 2008,'' Home Depot's Chief Financial Officer Carol Tome said in a statement July 10.

Declines in homebuilding and cooler consumer spending will cause economic growth to slow from last quarter's 3.4 percent annual rate, economists said.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net.

Last Updated: July 31, 2007 09:51 EDT