Wages up 0.8 per cent in third quarter
But rising consumer sentiment and faster wage growth suggest the weakness in spending will be temporary, with the economy remaining on firm ground.
"The fundamentals ... remain very solid," said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh. "The conditions are in place for continued above-trend growth."
The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, slipped 0.2 per cent last month after rising 0.5 per cent in August. The decline was the first since January.
While the data led some economists to pare estimates for fourth-quarter gross domestic product, most still look for an annual growth pace of 2.5 per cent to 3.0 per cent after the third quarter's brisk 3.5 per cent clip.
"What we are getting is a frustrating mix of conflicting data. This is a reflection of three per cent growth," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.
Separately, the Thomson Reuters/University of Michigan's index of consumer sentiment rose to 86.9 in October from 84.6 last month. Sentiment has been steadily rising in recent months, and now stands at its highest level since July 2007.
Another report from the Labor Department showed wages and salaries rose 0.8 per cent in the third quarter, the largest increase in more than six years.
U.S. Treasury debt prices fell on the mixed data, while the dollar rallied to its highest level since June 2010 against a basket of currencies, helped by a decision by the Bank of Japan to significantly ramp up its stimulus program. The BOJ's action also lifted U.S. stocks to near record highs.
Various business surveys have been hinting at an acceleration in U.S. wage growth, and the third-quarter increase was a welcome sign for the labor market.
"This first sign of rising wage pressure in hard data releases corroborates the Federal Reserve's more sanguine assessment of the labor market," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.
"If sustained, which we expect, it will further strengthen the Fed's commitment to continue its policy normalization path, and to eventually raise rates."
Fed policymakers on Wednesday gave a fairly upbeat assessment of the labor market, dropping their characterization of labour market slack as "significant" as they brought their bond-buying stimulus program to a close.
Officials at the central bank are keen to see faster earnings growth as they try to lift inflation to their two per cent target. The spending report showed the Fed's preferred gauge of core inflation rose just 1.5 per cent in the 12 months through September.
The combination of improving confidence, rising wages and a drop in gasoline prices to near a four-year low is a good omen for the upcoming holiday shopping season, particularly given that households have boosted savings to the highest level since December 2012.
In another upbeat economic sign, factory activity in the Midwest accelerated in October, with strong gains in new orders and employment. The strong order books should allay fears of a slowdown in manufacturing sparked by data earlier this week that showed unexpected weakness in business spending plans.
"The report is indicative of continued improvement in business sentiment," said Blerina Uruci, an economist at Barclays in New York.