Consumer spending loses steam

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NEW YORK (CNNMoney.com) -- Personal spending stagnated in August as the slowing economy continued to weigh on consumers, according to a government report released Monday.

The Commerce Department reported Monday that personal spending was virtually unchanged in August. Economists had forecast a 0.2% increase in personal spending.

Spending has not been this weak since February, when it was also flat.

Personal income, meanwhile, increased by 0.5% in August after a revised 0.6% decline in July. Economists surveyed by Briefing.com were expecting income to have grown by 0.2% last month.

After adjusting for taxes and certain price changes, however, real disposable income contracted 0.9%, according to the report.

"With the labor market remaining very weak, slow to negative growth in disposable income will most likely plague the consumer for at least the next six months," said Adam York, an economist at Wachovia Economics Group.

Consumer spending increased in May and June thanks to billions of dollars in payments sent to Americans as part of the Economic Stimulus Act of 2008.

The stimulus package was aimed at boosting consumer spending, which makes up the bulk of economic activity. But that spending waned as the stimulus program wound down.

The government said Friday that gross domestic product, the broadest measure of the nation's economic health, expanded at an annual rate of 2.8% in the April-June quarter, down from the 3.3% growth rate previously estimated.

With consumer spending accounting for two-thirds of the nation's GDP, "it's pretty clear now that were looking at a negative GDP number this quarter," said Bob Brusca, an economist at Fact and Opinion Economics.

Brusca noted that energy prices were subdued in August and that contributed to the income growth registered in the month. But he warned that "with weakness creeping into the economy, the outlook for income growth is not very good."

Monday's report comes as Congress prepares to vote on a controversial $700 billion bailout of the financial system.

The plan would use tax dollars to buy up bad mortgage-related assets from Wall Street companies in a effort to stabilize the financial markets and prevent further damage to the economy.