Consumer Spending Slowed in August As Incomes Dropped

Consumer spending in the U.S. slowed in August as incomes dropped for the first time in nearly two years.

Purchases rose just 0.2% in August after climbing 0.7% in July, according to a Commerce Department report issued this morning in Washington. A 0.2% advance in prices offset the gain in nominal, or unadjusted, spending. Meanwhile, incomes fell 0.1% in their first monthly decline since October 2009.

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The Commerce Department’s report also downwardly revises the July spending figure from a previously reported 0.8% gain.

As a result of stagnating wages, underemployment, and the plunging stock markets, consumer confidence is down, hurting sales at retailers like Target (NYSE:TGT) and Best Buy (NYSE:BBY).

“[Consumers] have a sour assessment of economic conditions and they are facing a lot of uncertainty about future earnings and employment prospects, and because of that there is a degree of hesitancy with respect to big ticket purchases,” said Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities Inc.

The savings rate fell to 4.5% in August, down from 4.7% in July to its lowest level since December 2009.

The Federal Reserve’s preferred price gauge, which excludes volatile food and fuel costs, rose just 0.1% in August, the smallest increase since March.

Earlier this month, the Commerce Department reported that retail sales, an earlier gauge of household spending, stagnated in August. A Labor Department report had the jobless rate holding at 9.1% last month, while average hourly earnings fell for the first time in more than three years.

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The overall drop in wealth is constraining consumer spending on big ticket items and non-essentials. Vehicles sales, for instance, came in at a 12.1 million seasonally adjusted annual rate last month, down 100,000 cars from the previous month.