Americans' incomes rose 0.3 percent in January but taxes and inflation gobbled up the gains and consumer spending was flat after adjusting for price increases, the Commerce Department said on Thursday.
Inflation-adjusted consumer spending has now been unchanged for three straight months, casting a pall over the economic outlook because household purchases of everything from televisions to restaurant meals are major drivers of growth.
The increase in income was just below analysts' forecasts of a 0.4 percent gain.
But after taking into account taxes and inflation, incomes fell 0.1 percent, the department said.
Spending rose 0.2 percent in January, just below analysts expectations. But after adjusting for inflation, it was flat.
Inflation has accelerated recently due to rising rents and gasoline prices. Prices on personal consumption expenditures rose 0.2 percent in January, up from 0.1 percent in December.
Still, the 12-month reading for PCE inflation edged lower to 2.4 percent, the lowest since April.