Incomes in the United States fell for the first time in nearly two years in August and consumers dug into their savings to keep spending, according to a government report that showed the impact of the weak jobs market.
The Commerce Department said on Friday spending rose 0.2%, in line with economists' expectations, after increasing 0.7% in July. When adjusted for inflation, however, spending was unchanged after rising 0.4% in July.
Consumer spending accounts for about 70% of U.S. economic activity.
Income slipped 0.1%, the first decline since October 2009, with private wages and salaries dropping $12.2 billion U.S. after increasing $23.8 billion U.S. in July.
Economists had expected income to edge up 0.1%.
Employment growth ground to a halt in August, and the jobless rate remains at a lofty 9.1%.
Consumer spending growth slowed sharply to a 0.7% annual pace in the second quarter after advancing 2.1% in the first three months of the year.
Overall economic growth rose at a 1.3% rate in the second quarter after expanding only 0.4% in the January-March period.
Last month, real spending on goods fell 0.2%, while services ticked up 0.1%.
Disposable income was unchanged for the first time since September, but when adjusted for inflation fell 0.3%, the largest drop since October 2009.
With real disposable income weak, savings fell to an annual rate of $519.3 billion U.S., the smallest since December 2009, from $550.5 billion U.S. in July. The savings rate dropped to 4.5%, also the lowest since December 2009.
The report showed a moderation in inflation pressures on a monthly basis. The personal consumption expenditures price (PCE) index rose 0.2% after increasing 0.4% in July.
Compared to August last year, the index was up 2.9%, the largest increase since October 2008, after advancing 2.8% in July.
The core PCE index -- excluding food and energy - rose 0.1% after gaining 0.2% the prior month.
The core index, which is closely watched by Federal Reserve officials, increased 1.6% in the 12 months through August after rising by the same margin in July.
The Federal Reserve would like to see it close to 2%.
