Income falls for 1st time since 2009

Associated Press

WASHINGTON

Americans earned less in August, the first decline in nearly two years. With less income, consumers could cut back on spending and weaken an already-fragile economy.

Their lower pay explains why consumers increased spending at a slower pace in August. And most of the increase went to pay higher prices for food and gas. When adjusted for inflation, spending was flat.

Many people tapped their savings to cover the steeper costs. The savings rate fell to its lowest level since December 2009.

The decline in income offered “more evidence that households are in quite a bind,” said Paul Dales, senior U.S. economist at Capital Economics.

Consumer spending rose 0.2 percent in August, after growing 0.7 percent in July, the Commerce Department said Friday. Incomes fell 0.1 percent, which was the first decline since October 2009.

The data also contributed to a rough day on Wall Street. The Dow Jones industrial average tumbled to close 240 points down. Broader indexes also fell.

When people have less income, they spend less, and that slows growth. Consumer spending accounts for 70 percent of economic activity.

The economy grew just 0.9 percent in the first half of the year, the worst six-month stretch since the recession officially ended more than two years ago.

Most economists have been predicting the second half of the year will be slightly better, in part because gas prices have come down since peaking this spring.

Dales estimates 2.5 percent growth in the July-September quarter and 1.5 percent in the final three months of the year. Those estimates take into account the weaker income figures.

Such growth may be enough to calm recession fears. But it is far from what is needed to lower the unemployment rate, which was 9.1 percent in August.