Earnings are down and so is spending, as struggling economy forces Americans to cut back

Americans made less for the first time in two years last month, prompting them to pull back on their spending.

Incomes dropped 0.1%, the Commerce Department reported, missing economists' forecasts for a slight gain. Spending edged up just 0.2% in August, and adjusted for inflation, it was flat.

Few available jobs and the struggling economy have eroded consumers' morale, heightening fears the pessimism could bite into retailers' profits and further dampen the economic recovery.

While consumers spent more last week, less of it was on big-ticket items and more of it was on food and clothing.

One source of optimism was a report showing consumer confidence rose in September.

The Thomson Reuters/University of Michigan's final September reading of its index of consumer sentiment hit 59.4, up from 57.8 earlier last month.

A separate report showed business activity jumped more than expected in the Midwest, lifted by new orders and a bump in jobs.

The Institute for Supply Management-Chicago business barometer rose to 60.4 in September from 56.5 in August.

Stocks fell more than 2% yesterday, however, amid signs of a global slowdown, with the Dow falling 241 points. The S&P 500 has dropped 14% over the past three months to post its worst quarterly drop since 2008.