Washington, DC, Aug. 30—Consumer spending in July rose by the smallest amount in nine months, even though tax rebate checks helped increase incomes. According to the Commerce Department, consumer spending increased by only 0.1%, as economists had predicted. That was the smallest gain since October and represented a drop from June's 0.5% increase.

Americans' incomes, which include wages, interest and government benefits, however, rose by 0.5% in July, the largest increase since December. In June, incomes rose by 0.4%.

Economists had predicted that consumers would tighten their belts in July even as the tax rebate checks began to circulate. The main reason for more cautious spending, economists say, is that people are worried about holding onto their jobs in the face of mounting layoffs and the floundering economy.

In July, spending on durables—costly manufactured goods expected to last at least three years, such as cars and washing machines—fell by 1.1%, following a 2.3% increase the month before. Spending on nondurables, such as clothes and foods, edged down by 0.1% in July for the second month in a row. Spending on services rose by 0.4% for the second straight month. The services category includes gas and electric utilities, visits to doctors, bus and train fares and rent for housing.

Americans' disposable incomes rose by 1.7% in July, following a 0.3% gain the month before. Incomes were bolstered by the tax rebates, lower tax rates and a special one time payment to correct underpayments of benefits associated with an error in the calculating Social Security and Supplemental Security Income benefits. Excluding these factors, disposable income increased 0.3% in July, the same as in June.

With income growth outpacing spending, the nation's personal savings rate—savings as a percentage of after tax income— rose to 2.5% in July, the highest since June 1999.

Economists say the savings rate doesn't provide a complete picture of household finances because it doesn't capture gains realized from such things as higher real estate values or from financial investments.

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