US consumers tighten their belts

US consumers have become more wary in recent months

US consumers slashed their spending in June by the largest amount in three years as rising fuel prices took their toll on sentiment.

The 0.7% decline in consumer spending, following a 1.0% rise in May, was led by weak car sales while luxury durable goods sales also suffered.

Wages were flat in June after a 0.6% rise in May, reflecting a sluggish jobs market in the US.

Consumer spending accounts for roughly two-thirds of all US economic activity.

Spending slowdown

The Federal Reserve admitted that the economy had hit a soft spot in June, but predicted that the softness in spending will be short-lived.

The spending slowdown, economists said, largely reflected weak automobile sales which are expected to have rebounded in July on the back of more generous incentives from car dealers.

The Fed will meet on 10 August to discuss interest rates, which are widely expected to be raised by a quarter point to 1.5%.

In June, the US central bank increased rates for the first time in four years, raising its key interest rate to 1.25%, from a 46-year low of 1.0%.