WASHINGTON (Bloomberg) - American consumers lost confidence in July, shaken by mounting concern over jobs and wages that threatens to constrain the economic recovery.

The Conference Board's sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months, figures from the New York-based private research group showed yesterday. Another report showed home prices rose more than forecast in May as a government tax credit temporarily underpinned sales.

A jobless rate that is projected to hover near 10 percent for the rest of the year means household spending, which accounts for 70 percent of the economy, will take time to recover. Ford Motor Co. is among companies lowering industry sales forecast for the year as concerned consumers focus on saving more and paying down debt.

"Faith in the economic recovery is failing," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who had forecast the confidence index would drop to 50.3. "It'll be 2013 before we see any semblance of normality in the labour market. It means weaker purchases."

The confidence gauge was forecast to drop to 51, according to median of 73 economists surveyed, with estimates ranging from 46 to 55.5. The Conference Board revised the June index up to 54.3 from a previously reported 52.9 reading. The measure averaged 98 during the expansion that ended in December 2007.

Home prices in 20 cities climbed 4.6 percent in May from the same month last year, exceeding the median forecast of economists surveyed and the biggest 12-month gain since August 2006, a report from S&P/Case-Shiller also showed. Home sales plunged following the April 30 contract-signing expiration of a government incentive worth up to $8,000, raising the risk that property values will slacken in coming months.

"There may still be some residual impact from the homebuyers' tax credit," David Blitzer, chairman of the index committee at S&P, said in a statement. "It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy."

Stocks fell, halting a three-day rally, as the decrease in confidence overshadowed better-than-projected earnings. The Standard & Poor's 500 Index dropped 0.2 percent to 1,113.05 at 12.06 p.m. in New York. The yield on the 10-year Treasury note increased to 3.04 percent from 2.99 percent late on Monday.

A flagging outlook over the next six months led sentiment lower, today's report showed. The proportion of Americans who expected their incomes to rise over the next six months fell to 10 percent, the lowest since April 2009.

"Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves," Lynn Franco, director of the Conference Board's consumer research center, said in a statement.

Yesterday's report is in line with the preliminary reading of the Thomson Reuters/University of Michigan confidence index, which declined in July to the lowest level since August 2009.

Americans are reducing debt as confidence wanes. The amount of consumer credit outstanding dropped for 18 of the 20 months to May, a record plunge.

Ford, the second-largest US automaker, said US vehicle sales in 2010 will be 11.5 million to 12 million. That is down from the Dearborn, Michigan-based company's prior forecast of 11.5 million to 12.5 million. Last year's 10.4 million vehicles was the lowest annual total since 1982.

"Consumers are worried about their personal balance sheet," Lewis Booth, Ford's chief financial officer, said in an interview on July 23. "While they're paying back their debts, thales of new homes in May dropped toan 18 percent gain in San Francisco in property values.