Americans spent no more in June than they did in May, even though their income grew at the fastest pace in three months.

The lack of growth in spending follows a decline in May, suggesting consumers are staying cautious with their money as the economy weakens.

Income rose 0.5%, the Commerce Department said in its June report on consumer spending and income.

That was the biggest gain since March and was driven by a 0.5% increase in wages, the largest component of income.

After-taxes and adjusting for inflation, incomes grew by 0.3%. The extra money in June paychecks went straight to savings and the savings rate rose to 4.4% in June, the highest level in a year.

Slower growth in consumer spending this spring was the main reason the economy grew at an annual pace of just 1.5% in the April-June quarter. That is less than the 2% growth rate in the January-March quarter this year.

Consumer spending drives roughly 70% of growth in the US. In June, consumers spent slightly more on services. But they cut back on cars and other long-lasting manufactured goods.

They also spent less on non-durable goods, such as clothing, food and petrol - although some of that may reflect lower petrol prices.

Economists do not expect growth to accelerate much in the second half of the year. Europe's financial woes and a US budget crisis are likely to weigh on business and consumer confidence. Jobs growth is also expected to stay weak.

Annual growth of 2% generally adds only about 90,000 jobs a month, according to economists. That is not enough to drive down the unemployment rate, which is stuck at 8.2%. Healthier growth of 4% or more is needed to reduce unemployment significantly.

The US government will release the July jobs report on Friday. Economists forecast that employers added 100,000 jobs during the month. That would be only slightly better than the 75,000 a month from April through June and still down from a healthy 226,000 average in the first three months of the year.

Without more jobs, income growth is likely to remain sub-par and consumers are likely to remain cautious about spending.

Sluggish economic growth could compel the Federal Reserve to announce further efforts to bolster the economy. Fed officials meet today and tomorrow.

But many private economists believe the Fed will wait until their September meeting for any new measures. That would allow the Fed more time to review the July and August jobs reports before taking new steps.

Economists had hoped that falling petrol prices would give consumers more money to spend elsewhere and boost growth in the second half of the year. But gas prices have stopped falling and have even started to rise in recent weeks. And this summer's severe drought is expected to push food prices up toward the end of the year.

US Conference Board reports higher reading in July

US consumer confidence rose in July after four months of declines, as a brighter outlook for short-term hiring offset longer-term worries about the economy.

The Conference Board says its Consumer Confidence Index increased to 65.9, from 62.7 in June. That is the highest reading since April and better than the reading of 62 that economists had forecast.

But the index still remains well below 90, which indicates a healthy economy. It has not been near that level since the recession began in December 2007.

The index fell to an all-time low of 25.3 in February 2009 - four months before the recession officially ended.

Consumer confidence is widely watched because consumer spending drives 70% of US economic activity.