The Commerce Department reported on Wednesday that consumer spending fell 0.6 per cent last month, slightly smaller than the 0.7 per cent drop that economists had expected.

Americans' incomes fell by a worse-than-expected 0.2 per cent. It was the first decline since July and reflected in part the fact that more than a half-million jobs were cut in November as the recession deepened.

The 0.6 per cent drop in consumer spending followed an even larger 1 per cent fall in October. However, the steep plunge in gasoline prices, which is actually good news for consumers, made the declines look worse.

Excluding price changes, consumer spending would have dropped 0.5 per cent in October and actually risen by 0.6 per cent in November.

The November increase excluding inflation was the best showing in more than three years.

Still, economists think the overall trend for consumer spending is down, given the problems facing the economy including the longest recession in a quarter century, a severe financial crisis that has cut off access to credit for millions of borrowers and a massive wave of job layoffs.

All of those troubles have left retailers braced for what could be their worst holiday shopping season in decades.

Economists don't think the hard times will end any time soon. The government reported Thursday that the overall economy, as measured by gross domestic product, was contracting at an annual rate of 0.5 per cent in the July-September quarter and analysts believe the contraction will accelerated in the current quarter. Some are forecasting that GDP will plunge at an annual rate of 6 per cent, which would be the worst showing in 26 years.

Many analysts say GDP will also fall in the first and second quarters next year before beginning a modest rebound in the summer.

If that forecast turns out to be accurate, it would make the current recession, which began in December 2007, the longest in the post World War II period.

The economic weakness is helping to keep inflation under control.

A price gauge tied to consumer spending fell by a record 1.1 per cent in November, the second monthly decline. Excluding the cost of energy and food, the price index was unchanged last month.

Over the past 12 months, consumer prices are up 1.4 per cent, the smallest 12-month change since August 2002. -- AP