Incomes drop sharply in July while spending slows

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Consumer spending slowed to a crawl and personal incomes plunged in July, reflecting the waning impact of $93 billion in economic stimulus payments.
The Commerce Department report Friday showed that consumer activity got off to a shaky start in the third quarter, raising new worries that the economy could falter in coming months due to rising unemployment, a continuing credit crisis and the deepest housing slump in decades.

Personal incomes fell by a bigger-than-expected 0.7 percent in July, the biggest drop in nearly three years, while consumer spending edged up a modest 0.2 percent, just one-third the 0.6 percent gain in June.

The report showed that the June and July spending figures were skewed by a huge jump in inflation during the period. An inflation gauge tied to consumer spending rose over the past 12 months by 4.5 percent, the biggest price jump in 17 years, led by higher costs for energy and food. Without the big jump in prices, consumer spending would have actually fallen by 0.4 percent last month after dropping 0.1 percent in June, underscoring just how weak current activity is.

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