Income Falls 2.3%, Spending Flat in Jan.

Consumer spending (search) was unchanged in January, below expectations for a small rise, as purchases of motor vehicles and parts declined sharply, a government report showed on Monday.

The Commerce Department (search) said personal income fell 2.3 percent in January after hitting a record in December on a big dividend payout by Microsoft Corp.(MSFT) Excluding that one-time dividend impact and other factors, personal income rose 0.5 percent in January compared with a 0.6 percent gain in December, the department said.

Economists had expected personal income to decline 2.6 percent following December's Microsoft-related boost. Economists expected consumer spending to increase 0.1 percent.

Consumer spending was down 0.2 percent when factoring in price rises, marking the weakest reading since June 2004.

The department said the price index for consumer spending, a measure of inflation, increased 0.2 percent and rose 0.3 percent when volatile food and energy prices were stripped out. That's a pickup from December's flat readings.

In the first read on core PCE inflation for 2005, the index favored by Federal Reserve (search) Chairman Alan Greenspan (search), the department said prices increased 1.6 percent on a year-over-year basis — matching the fourth-quarter pace posted in Friday's gross domestic product report.

A 4.7 percent drop in the purchase of durable goods accounted for the decline in real consumption for the month. That, the department said, was due to a slide in purchases of motor vehicles and parts, which had boosted real consumption in December.

The personal saving rate was 1.0 percent in January, indicating that Americans were setting aside 1 cent from each dollar earned. That was down from 3.6 percent in December.