Washington Consumers, the lifeblood of the economy, clutched tight to their wallets in June and caused the largest spending drop in three years.
The Commerce Department reported Tuesday that consumers cut their spending by 0.7 percent in June from the previous month as high energy prices and a sluggish job market made for more cautious buyers.
Because the buying retreat came off a strong 1 percent rise in consumer spending in May, some economists believed it was just a temporary lull. Others weren't so sure, however, and they said the disappointing showing in June raised new questions about consumers' willingness to spend.
Americans' incomes, the fuel for future spending, 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.
"Jobs will be the key factor to get income and spending back on track," said Lynn Reaser, chief economist at Banc of America Capital Management.
The nation's payrolls grew by just 112,000 in June, half the amount analysts had forecast. Economists are predicting a rebound in July, however, with job growth in the 200,000 range. The government releases the employment report for July on Friday.
Consumer spending accounts for roughly two-thirds of economic activity in the United States.
"These are sour numbers. There is no sugarcoating that," lamented economist Ken Mayland, president of ClearView Economics. "Consumers were confronted with a whole range of high prices, including energy, and they balked."
The 0.7 percent decline in spending was the first since September 2003 and the largest drop since September 2001.