by Martin Crutsinger
The Associated Press
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, even worse than the small 0.2 percent gain economists had expected. It was the weakest showing since spending was also flat in February.
Personal incomes were up a better-than-expected 0.5 percent, a rebound after a 0.6 percent drop in July. After-tax incomes, which felt the impact of the stimulus program to a greater extent, dropped by 0.9 percent, however.
The data were released as the House rejected a $700 billion bailout of the financial system. The compromise packaged, hashed out in marathon meetings by lawmakers over the weekend, would be the largest financial system rescue since the Great Depression. It is aimed at buying up soured mortgage-related assets from banks in the hope that would pry open credit markets, get lending flowing again and jump-start the economy.
The government pumped out the bulk of $92 billion in stimulus payments from late April through mid-July. Another $1 billion in payments were made in August but this was far below the monthly peak of $48.1 billion in payments made in May.
Analysts are concerned 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 impact of the stimulus on the budget deficit, has resisted that effort.
The overall economy grew at an annual rate of 2.8 percent in the April-June quarter, bolstered by the stimulus payments.
But economists noted that consumer spending, which accounts for two-thirds of total economic activity, has slowed markedly in the current July-September quarter. Some analysts believe consumer spending will decline for the entire quarter, the first time that has occurred since 1991.
Many analysts believe the overall economy, as measured by the gross domestic product, will slow to growth of around 1.5 percent in the current quarter and will turn negative in the final three months of this year and the first quarter of 2009, meeting the classic definition of a recession.
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.