Americans' income growth effectively stalled in June, and consumer spending plunged at the steepest monthly rate since September 2001, the government reported yesterday, fueling new concerns about the strength of the U.S. economic expansion.

Overall personal income was flat in June after adjusting for inflation and taxes, the Commerce Department said. Wages and salaries, the largest component of personal income, did not budge in June, even without such adjustments -- the worst showing since they dropped 0.1 percent in December.

Consumer spending dropped 0.7 percent in June, according to the Commerce report, reinforcing other signs that the U.S. economic expansion lost momentum in the spring with rising inflation, higher interest rates and a slowing pace of job creation.

The report comes as President Bush and Sen. John F. Kerry (Mass.), the Democratic presidential nominee, continue to spar over the effectiveness of the administration's economic policies. A series of tax cuts and Federal Reserve interest rate cuts helped boost economic growth for much of the past three years, but many analysts had expected stronger employment growth and income gains to fuel a more vibrant recovery by now.

The June results "raise increasingly serious questions about the strength and sustainability of the economy in the months ahead," said Charles W. McMillion, president and chief economist of MBG Information Services.

Stock prices fell and bond prices rose yesterday as many investors concluded that the economy may continue to cool, which would both mute profit growth and ease inflation pressures.

Many economists yesterday held to their forecasts that Fed policymakers will raise their short-term interest rate target to 1.50 percent from 1.25 percent when they meet next week, to keep inflation under control.

But some said Fed officials might reconsider whether to leave rates unchanged until it becomes clear whether June marked an economic hiccup or the beginning of a more worrisome slide.

Fed Chairman Alan Greenspan said last month on Capitol Hill that the economy had a hit a temporary "soft patch," but that it should not hinder an expansion that appeared to be broadening and gaining momentum. And he signaled that the Fed would likely raise rates gradually to keep inflation under control.

"This soft patch . . . now appears to be deeper and wider than anyone had any reason to suspect a few months ago," McMillion said. "I think the Federal Reserve should be re-evaluating planned moves."

Many economists viewed the June figures as an aberration, and said both the economy and the Fed will likely stay on track. One key sign of strength will come Friday when the Labor Department releases the July employment report.

Much of the June drop in consumer spending reflected a severe falloff in auto sales that occurred when shoppers shunned manufacturers' efforts to trim rebates and other financial incentives. Spending on such big-ticket durable goods declined 5.9 percent in June, Commerce said.

U.S. automakers cranked up incentives in July, and sales popped back up, they reported yesterday, providing support for the optimists' economic outlook.

"We expect the economy to register moderate growth in the second half of 2004," Joe Liro, an economist with Stone & McCarthy Research Associates, wrote in a note to clients yesterday. "The solid outlook for economic growth and the quickened rate of inflation will cause the Fed to continue to increase the [rate target] at next week's [Fed] meeting."

While autos accounted for most of the slump in durable goods spending, spending on other goods also fell in June, by 0.3 percent, while spending on services rose by 0.2 percent.

"We knew consumer spending hit a bump in the road during June but we had no idea the pothole would be so huge," Liro wrote.

The Commerce report showed that auto pricing was not entirely to blame for the consumer pullback. Other big factors were weak income growth and higher inflation.

Overall personal income -- which includes wages, salaries, and income from dividends, interest, self-employment and other sources -- rose by 0.2 percent in June, the slowest monthly increase in more than a year, Commerce reported.

Consumer prices rose 0.2 percent in June, and 2.5 percent in the 12 months that ended in June, according to a Commerce Department inflation measure.

Gasoline prices spiked in late May to a national average of $2.054 for a gallon of unleaded regular, taking a bite out of household budgets in June. They fell a bit in June and July, to an average of $1.89 per gallon yesterday, according to the AAA automobile club.

Many of the forecasts for healthy economic growth in the second half of this year assume that oil prices will fall from their spring highs, which largely reflected fears of terrorism and other potential supply disruptions.

But crude oil prices have jumped to new highs in recent days on similar worries. Benchmark crude scheduled for September delivery rose to $44.15 on the New York Mercantile Exchange yesterday, the highest price since trading began there in 1983, Bloomberg News reported.

Inflation remained tame in June after excluding volatile food and energy prices. The Commerce Department's so-called core measure showed consumer prices rising 0.1 percent in June, and 1.5 percent in the 12 months that ended in June.

The 12-month increase has averaged 1.5 percent since February, indicating that core inflation has stabilized at a level that is well within the Fed's comfort range, but it is up from a low of 1 percent in September.

A New York store advertises its sale prices. Consumer spending fell 0.7 percent in June, according to the Commerce Department.