WASHINGTON - As gasoline prices rose, Americans spent more in June than the previous month - despite falling incomes. For the rest of the year, economists expect falling wages and rising unemployment to act as a drag on spending.

Consumer spending is closely watched because it accounts for about 70 percent of total economic activity and has helped lift the economy out of previous recessions. While analysts expect the economy to grow in the second half of this year, consumers aren't likely to lead the way.

Americans boosted their spending 0.4 percent in June, the Commerce Department said Tuesday, the second consecutive monthly increase. But adjusting for inflation, spending fell 0.1 percent, following a flat reading in May. Inflation-adjusted spending hasn't increased since February, the department said.

Personal income, meanwhile, dropped 1.3 percent in June, the eighth straight decline and steepest fall in four years. Incomes were inflated in May due to one-time payments from the Obama administration's stimulus program. But wages and salaries also fell 0.4 percent in June.

"The key message is that ... income remains weak" and consumers are likely to keep saving more, Paul Dales, U.S. economist at Capital Economics, wrote in a note to clients. "Under those circumstances, we expect spending to remain muted for some time."

Consumer spending may increase in July and August due to the government's "cash-for-clunkers" program, economists said, but will likely level off afterward. The program has spurred thousands of Americans to trade in old cars for newer vehicles.

"When given sufficient incentive, as in cash-for-clunkers, consumers will spend," said Nigel Gault, chief U.S. economist for consulting firm IHS Global Insight. "But reduced wealth, high debt, tight credit and a weakening labor market are all weighing on consumers."

Gas prices peaked June 22 after rising nearly every day for two months. A price index included in the income and spending report showed overall prices rose 0.5 percent in June, but were up only 0.2 percent when food and energy are excluded.

Still, the housing market continued to show signs of life as pending U.S. home sales rose in June for the fifth straight month, according to the National Association of Realtors. The group's pending home sales index rose more than expected to 94.6, from an upwardly revised reading of 91.3 in May. The last time there were five straight monthly gains was July 2003.

Americans are saving more as they seek to rebuild their nest eggs, which have been hammered by falling home values and stock portfolios amid the longest recession since World War II.