Flat Incomes, Weak Consumer Spending Raise Concern

Flat incomes suggest more weakness ahead in consumer spending, reinforcing concerns about a ho-hum holiday shopping season and a sluggish economic recovery.

In this Oct. 7, 2009 photo, a Best Buy saleswoman, lower, gives change to a customer at Best Buy in...

In this Oct. 7, 2009 photo, a Best Buy saleswoman, lower, gives change to a customer at Best Buy in Mountain View, Calif. Consumer spending plunged in September by the largest amount in nine months, reflecting the end of the government's Cash for Clunkers auto sales program. Incomes, the fuel for future spending, were flat.

(Paul Sakuma/AP Photo)

"This recovery is going to be very weak. Consumers are in no position or mood to spend. Their wages are down and they can't get credit," said Sung Won Sohn, an economics professor at California State University's Smith School of Business.

Concerns about the economy sparked by disappointing government data on spending and incomes sent stocks down Friday, erasing the previous day's big gains. The Dow Jones industrial average lost about 250 points, and broader indexes also fell.

The Commerce Department reported that personal incomes were stagnant in September while the all-important wage and salary category dropped 0.2 percent, as unemployment rose.

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Consumer spending — which accounts for 70 percent of total economic activity — dropped 0.5 percent, the first decline in five months and the biggest since December.

The spending retreat reflected a sharp falloff in auto sales following a spike in August from the government's Cash for Clunkers program.

The overall economy, as measured by the gross domestic product, actually grew at a 3.5 percent rate from July through September, signaling an end to the longest recession since the 1930s.

But analysts said the income and spending report underscored fears about a weak recovery. The most pessimistic worry the nation could be headed for a double-dip recession as consumers, concerned about further job losses and their tattered investment holdings, refrain from spending.

Some analysts believe that GDP growth, which received a big boost from the government's stimulus programs in the third quarter, will slow to 2 percent or less in the current quarter.

David Wyss, chief economist at Standard & Poor's in New York, said a recent spike in energy prices and other problems will depress sales in coming weeks, giving the nation's retailers another lackluster shopping season.