Consumer Spending Fails To Outpace InflationConsumer Spending Fails To Outpace Inflation

In a sign that the U.S. economy could be headed toward a period of stagflation, government numbers released Friday showed that consumers are spending more -- but only to keep up with rising prices.

Overall consumer spending in January increased 0.4% compared with December, but a widely used measure of inflation increased by about the same amount in the same period, the Department of Commerce said Friday.

That means consumers are spending more just to maintain their current levels of goods and services acquisitions -- an indication that there's no real growth in the economy.

Should consumption remain flat amid rising prices, the United States would technically be in a state of stagflation. The country was most recently hit with significant stagflation in the 1970s, when President Richard Nixon was forced to implement wage and price controls in an effort to curb rising costs.

A drop in consumer confidence added to the sense pessimism surrounding the economy Friday. Consumer sentiment, a measure of expectations for income and unemployment, fell to 70.8 in February from 78.4 in January, according to a survey by Reuters and the University of Michigan.

The index has declined almost 30% since January 2007.

Concerns about the economy pushed the Dow Jones Industrial Average down by more than 200 points to less than 12,400 in afternoon trading Friday. The tech-heavy Nasdaq was off 37 points.

Tech stocks didn't escape the bashing. Bellwether IBM was down more than half a point to $114.50. Intel dropped more than 1.5%, while Microsoft declined nearly 2%. Google fell one-half of a point to less than $478.