WASHINGTON – Consumer confidence unexpectedly dropped in January and a gauge of business activity fell, underscoring forecasts that the economy will cool after expanding at the fastest pace since the second quarter 2010.

The New York-based Conference Board’s confidence index decreased to 61.1, lower than the most pessimistic forecast in a Bloomberg News survey of economists, from a revised 64.8 reading the previous month. The Institute for Supply Management-Chicago said its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth.

Employers aren’t hiring fast enough to drive bigger gains in wages and consumer spending, while higher gasoline prices are cutting into household budgets.

Another report Tuesday showed home prices fell more than forecast in November, eroding the wealth of families as they seek to rebuild savings.

“This quarter will be a bit slower,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, who had the lowest sentiment estimate. “Consumer confidence appears to have leveled off, as job growth isn’t quite as good and gasoline prices have moved back up.”

In Europe on Tuesday, German unemployment dropped more than economists forecast to a two-decade low in January, bolstering growth in the continent’s largest economy.

The S&P/Case-Shiller index of property values in 20 U.S. cities declined 3.7 percent from November 2010 after decreasing 3.4 percent in the year ended in October, the group said. Economists projected a 3.3 percent drop, according to the median estimate in a Bloomberg survey.

The consumer confidence figure was projected to rise to 68, according the median forecast of 74 economists surveyed. The measure averaged 53.7 during the recession that ended in June 2009.

The share of consumers who said jobs are currently plentiful fell to 6.1 percent from 6.6 percent. Those who said jobs are difficult to get increased to 43.5 percent, the highest in three months, from 41.6 percent.

The proportion expecting incomes to rise over the next six months dropped to 13.8 percent from 16.3 percent. Still, the percent of respondents expecting more jobs to become available in the next six months increased to 16.2 from 14 the previous month.

Employers added 145,000 jobs in January after payrolls rose by 200,000 in December, according to the median estimate in the Bloomberg survey before this Friday’s data from the Labor Department.

“Unemployment has remained stubbornly high,” said Sandra Cochran, chief executive officer of Cracker Barrel Old Country Store Inc. “Consumer sentiment remains weak, and this has focused the industry on price and prompted many of our competitors to remain very focused on discounting.”

Consumers are limiting their purchases as they rebuild savings. The economy expanded 2.8 percent in the final three months of 2011, compared with economists’ 3 percent median forecast, according to Commerce Department data released Friday. Household purchases rose 2 percent.

The gross domestic product will expand at a 2 percent annual rate this quarter, according to the median forecast in a Bloomberg survey of economists taken from Jan. 6 to Jan. 11.

The Federal Open Market Committee last week said its benchmark interest rate will remain low at least through the end of 2014.