Deja View: Consumers Spend More, Save Less

Better-than-expected personal spending levels are offset by a larger drop in income.
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WASHINGTON (

TheStreet

) -- Investors remained cautious on Tuesday, as consumer spending rose in June, but income fell more than expected.

The Commerce Department announced on Tuesday that shoppers boosted their spending by 0.4% during the month, slightly ahead of analysts' estimates. In May spending rose 0.1%.

Consumer spending accounts for about 70% of total economic activity, and an increase could therefore provide an obvious boost to the economy.

Meanwhile, however, personal income dropped 1.3% after rising the same amount in May. It was the biggest one-month drop in four-and-a-half years and, coupled with the increase in spending, resulted in a significant decline in the savings rate. Savings dropped to an annual rate of $505 billion, with the saving rate falling from 6.2 percent in May to 4.6 percent in June.

Retail investors are waiting to see if this increased spending in June can carry over into July, as retailers report same-store sales results on Thursday.

The S&P 500 opened lower on Tuesday, down 0.5% to 997.69, while the S&P Retail Index was off 0.2% to 359.33. Shares of

Macy's

(M) - Get Report

dropped 2% to $14.20,

Saks

(SKS)

declined 2% to $5.16 and

BJ's Wholesale Club

(BJ) - Get Report

dropped 2% to $33.01.

-- Reported by Jeanine Poggi in New York.

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