Even with back to school spending in high gear in August, consumer spending was sluggish. Economists say that the first drop in incomes since October, 2009 probably had a lot to do with that.

Reuters:

The Commerce Department said on Friday spending rose 0.2 percent, in line with economists' expectations, after increasing 0.7 percent in July. When adjusted for inflation, however, spending was unchanged after rising 0.4 percent in July.

Consumer spending accounts for about 70 percent of U.S. economic activity, so the flat inflation-adjusted reading adds to a picture of shaky GDP growth.

Income slipped 0.1 percent, the first decline since October 2009 and contrasted with economists' forecast for a 0.1 percent advance. Private wages and salaries dropped $12.2 billion after increasing $23.8 billion in July.

"What you're basically getting is a scene where consumers are losing momentum, they're losing momentum on income and as a result of that they're slowing down on spending," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities in New York.

Employment growth ground to a halt in August, and the jobless rate remains at a lofty 9.1 percent, eroding consumers' buying power. The September payrolls report is due next Friday.

We'll have a good idea mid-week about what the payroll report will be like. First time unemployment claims dropped this month so there's a good chance that the overall rate will remain the same or drop slightly.

At this point, it is the number of jobs that are created that is the key indice. Unless that number can get above 150,000 there will be little or no change in unemployment.