Consumer spending slows with a drop in incomes

Consumers were forced to dip into their savings to cover a 0.2 percent increase in prices, nearly zapping the gain in spending. When adjusted for inflation, August consumer spending was flat.

Prices for clothing, food and other nondurable goods was up 0.3 percent.

Income growth hasn’t advanced much this year: Taking inflation into account, after-tax incomes fell 0.3 percent in August and 0.2 percent in July, the first decline in more than three years as the nation faced the financial crisis. 

Consumer spending — 70 percent of the economy — has been hampered by persistently high unemployment.

The savings rate, which had hit nearly 7 percent during the economic downturn, dropped to 4.5 percent last month. Before the recession in December 2007, consumers saved at a rate of only 2 percent. 

After months of rising gas prices, they’ve now dropped to about $3.46 per gallon, down from this year’s peak price of $3.98 per gallon.

Consumers spent less last month on big purchases, such as cars, appliances and furniture. Car sales fell during the month, but part of that weakness reflected supply problems stemming from the Japan crisis.