Consumer spending plunges

WASHINGTON — Consumers slashed their spending in June by the largest amount in three years as high energy prices took a toll on their wallets and made them more cautious buyers.

The Commerce Department reported Tuesday that consumer spending dropped by a sharp 0.7 percent in June from the previous month. The retrenchment came after consumers splurged in May, ratcheting up spending by a strong 1 percent.

Americans’ incomes rose by 0.2 percent in June, down from a solid 0.6 percent increase the month before.

The figures are not adjusted for price changes.

The latest snapshot of consumer spending was weaker than economists were expecting. They were forecasting a tiny 0.1 percent dip in spending and a 0.3 percent rise in incomes for June.

“These are sour numbers. There is no sugar coating that,” lamented economist Ken Mayland, president of ClearView Economics. “Consumers were confronted with a whole range of high prices, including energy, and they balked.”

Consumer spending accounts for roughly two-thirds of all economic activity in the United States. Thus it plays a key role in shaping an economic recovery.

In June though, the weakness in consumer spending was fairly widespread.

The 0.7 percent decline in spending was the first since September 2003 and the largest drop since September 2001.

The decline was led by a cutback in spending on automobiles and other big-ticket durable goods.