Consumer spending remains flat in August

Consumer spending in August turned in the weakest performance in six months, underscoring the threat the economy faces as the government’s stimulus program fades into the past.

The Commerce Department reported Monday that consumer spending was unchanged in August, worse than the small 0.2% gain economists had expected. It was the weakest showing since February, when spending was also flat.

Personal incomes were up a better-than-expected 0.5%, a rebound from a 0.6% drop in July. After-tax incomes, which felt the effect of the stimulus program to a greater extent, dropped by 0.9%, however.

“Consumers are still earning some money, but they have no interest in spending it,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa.

The government pumped out the bulk of $92 billion in stimulus payments from late April through mid-July.

Analysts are concerned that the economy could falter now that the government’s stimulus payments have ended. Democrats have pushed for a second stimulus program.

The Bush administration, worried about the effect on the budget deficit, has resisted that effort.

The overall economy grew at an annual rate of 2.8% in the April-June quarter, bolstered by the stimulus payments.

But economists noted that consumer spending has slowed markedly in the current July-September quarter. Some analysts believe that consumer spending will decline for the entire quarter, the first time that has occurred since 1991.

Many analysts believe that the overall economy, as measured by the gross domestic product, will slow significantly in the current quarter.

There is a growing expectation that the Federal Reserve will cut interest rates at its next meeting on Oct. 28-29 in an effort to prop up the economy as spending sags.