Combined purchases of new and previously owned homes fell to an annual rate of 6.897 million, the fewest since April 2003, according to the median forecasts of economists surveyed by Bloomberg News. Americans spent 0.7 percent more on goods and services last month, a gain not exceeded since January 2006, another report may show.

The spending report may also show that, for the first time in three years, inflation slid within the Federal Reserve's preferred range. Still, policy makers will hold the interest rate target unchanged when they meet this week and will maintain that inflation remains their biggest concern, economists said.

"The U.S. economy, ex-housing, seems to be showing strong signs of recovery, which will prevent the Federal Reserve from lowering interest rates any time soon," said Eugenio Aleman, a senior economist at Wells Fargo & Co. in Minneapolis.

A report tomorrow from the National Association of Realtors may show sales of previously owned homes fell to an annual pace of 5.972 million in May from 5.99 million a month earlier, according to the median estimate of economists surveyed.

The following day, the Commerce Department is forecast to report new homes sold at a 925,000 annual rate, down from April's 981,000 pace.

"We haven't seen the bottom yet for home sales," said Ellen Zentner, a macroeconomist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. "Housing will continue to be a drag on growth."

Builder Losses

Homebuilders also see no relief. Hovnanian Enterprises Inc., New Jersey's largest homebuilder, last month reported its third consecutive quarterly loss as sales plummeted, it cut prices and wrote off land options.

"Without a doubt, things have slowed since about March," said Ara Hovnanian, the builder's chief executive officer, in an interview June 18. "There is not a recovery that is about to happen."

The projected gain in consumer spending last month would follow a 0.5 percent increase in April, the Commerce Department's June 29 report is forecast to show. Personal income probably rose 0.6 percent, after dropping 0.1 percent in April, according to the survey median.

Job and income gains are keeping consumers spending even as food and fuel prices jump and home values drop.

Spending

"Consumers aren't in the clear yet, but they have weathered the worst of the housing correction and have continued to spend," said Zentner.

Part of last month's gain in spending reflects a jump in gasoline prices to record levels. For that reason, the figures will be less vigorous after adjusting for inflation, economists said.

Spending gains will probably average 2.5 percent at an annual pace in the second half of the year compared with an average 4.3 percent pace in the previous two quarters, according to the median forecast in a Bloomberg survey taken earlier this month.

The Fed's favored inflation measure, which is tied to spending patterns and excludes food and energy, may show a 0.1 percent rise in May for a second month. The gauge, known as the core rate, was probably up 1.9 percent from May 2006, within the 1 percent to 2 percent range preferred by some Fed policy makers. The last time core prices were within the band was March 2004.

Fed Forecasts

Economists surveyed were unanimous in forecasting the Fed will keep its target for the benchmark overnight bank-lending rate at 5.25 percent for an eighth consecutive time on June 28, following two days of meetings.

Policy makers said the risk that inflation wouldn't moderate as forecast was their "predominant" concern, following their previous meeting on May 9.

"We look for the Fed to keep its anti-inflation bias intact," said John Shin, an economist at Lehman Brothers Holdings Inc. in New York. A low jobless rate, improving economic growth and high food and energy prices are among "warning signs about future inflation pressures," he said.

An improvement in manufacturing and a pickup in business investment are two reasons economists forecast growth accelerated this quarter.

Orders for durable goods, excluding demand for transportation equipment such as aircraft, rose 0.3 percent in May, a third monthly gain, the Commerce Department's June 27 report is forecast to show. Demand for transportation equipment tends to be volatile and may obscure underlying trends, according to economists.

Including transportation gear, orders probably fell 1 percent due to a drop in bookings for Boeing Co. aircraft, economist said.