Personal spending increased less than 1% in August, to $3.9 billion, but was flat when adjusted for inflation, the US Department of Commerce reports.

Flat consumer spending suggests the economy continues to slow in the second half of the year. Consumer spending makes up about 70% of the nation's GDP.

Personal consumption expenditures -- PCE, in government-speak -- rose 0.6% in July.

Personal income rose at a seasonally adjusted rate of 0.5% in August compared with July. For August, analysts had expected a 0.2% increase in personal income and consumer spending.

A year ago, the personal consumer expenditure index rose 4.5%. The PCE index, excluding food, gasoline and other energy -- or core PCE -- rose 0.2% in August after a 0.3% increase in July.

The Federal Reserve keeps an eye on the year-over-year core PCE for signs of inflation. In general, price stability is defined as inflation of 1.5% to 2%.

The Commerce Department says wages and salaries increased $24.5 billion in August, up from $16.3 billion in July.

Disposable income in August, or income after taxes, fell 0.9% after dropping 0.8% in July. Rebates, expected to total $106.7 billion for the year, ended in July.

Personal current taxes increased $154.9 billion in August, compared with an increase of $21.9 billion in July. Provisions of the Economic Stimulus Act of 2008 reduced the level of current taxes by $7.3 billion at an annual rate in August, by $159.9 billion in July and by $185 billion in June. The reductions in current personal taxes reflected rebate payments to eligible individual taxpayers.

Spending on durable goods, or those designed to last 3 or more years, rose 1.4% in August. Such expenditures declined 3.1% in July. Spending on non-durable goods fell 0.6% in August after climbing 0.5% in July.

Personal savings as a percentage of disposable income was 1% in August down from 1.9% in July. Saving from current income may be near zero or negative when outlays are financed by borrowing -- including use of credit cards or home equity loans -- by selling investments or other assets or by dipping into savings, the Commerce Department reported.

Meanwhile, increasing numbers of car buyers are having difficulty financing new vehicles. This follows the slowdown in auto sales caused by high fuel prices.

Automakers are scheduled to report September sales on Wednesday. Analysts expect sales on new vehicles to remain at a 15-year low. J.D. Power & Associates pegs the seasonally adjusted sales at 12.6 million vehicles, down from 16.2 million a year ago. Such sales would undercut the view that the auto industry has bottomed out following a slow summer.

Domestic auto makers have cut way back on vehicle leasing and lenders have significantly toughened standards as credit tightens.