US consumers cut spending for a sixth month in a row in in December and their incomes shrank, according to a government report that underscored the rapid deterioration in the economy.
The Commerce Department said spending decreased by 1% after falling by a revised 0.8% in November. That figure was previously reported as a 0.6% drop.
Incomes fell by 0.2% after November's 0.4% decline, previously reported as a 0.2% decline. Analysts had forecast that spending would fall by 0.9% and incomes slip by 0.4%.
For the whole of 2008, spending rose 3.6%, the smallest increase since 1961. Incomes increased 3.7%, the smallest advance since 2003.
Data last week showed the US economy shrank at its fastest pace in nearly 27 years in the fourth quarter, led down by steep contractions in consumer and business spending.
The economy's collapse is keeping inflation pressures muted. The overall personal consumption expenditures price index rose 0.6% on a year-over-year basis in December from 1.4% in November.
Excluding food and energy, the rise in the index slowed to 1.7% after gaining 1.9% in November. On a monthly basis, core prices were flat for a third month in a row in December. The deepening housing-led recession has seen households saving more money. Personal savings surged in December to 3.6% of disposable income from 2.8% in November, the highest rate since May 2008.
Analysts said that if people start saving more they will be spending less, so the downturn will be more severe and long lasting.
Separate figure showed that US factory activity shrank at a slower pace in January, providing a rare dose of good news for the economy.
The Institute for Supply Management said its index of national factory activity rose to 35.6 from a nearly three-decade low of 32.9 in December. It was the first increase since June, but it remained well below the break-even figure of 50, showing that the sector continues to contract sharply.
