The 0.2% drop in spending followed a revised 0.3% decline in November, a much smaller decrease than previously reported, the U.S. Commerce Department reported.

Even with these modest declines, consumer spending held up well even as the country suffered through a recession that began in March and got another jolt by the Sept. 11 terror attacks.

Cash left over from home refinancing stemming from low mortgage rates, heavy discounting by retailers and zero-percent financing have induced people to spend.

In the fourth quarter, consumer spending rose by a surprisingly strong 5.4%, one of the reasons the economy was able to grow at a 0.2% rate during the period and defy expectations of another negative quarter.

Americans' incomes -- which include wages, interest and government benefits -- rose by a solid 0.4% in December, after being flat the month before. For all of 2001, Americans' incomes and spending each rose by 4.9%.

While the increase in spending was the smallest since 1991, the fact that consumer spending didn't collapse under the strain of rising unemployment and economic turmoil was heartening to many economists.