Income gains in the U.S. are slowing and workers’ slice of the earnings pie is shrinking, raising the risk that consumer spending slackens next year.

Gross domestic income, or the money earned by the people, businesses and government agencies whose purchases go into calculating growth, rose at an average 2.8 percent annual rate from April through September after climbing 4.3 percent in the previous six months, Commerce Department data on Nov. 22 showed. Employee compensation last quarter accounted for its smallest share since 1955.

In contrast, the portion accruing to corporate profits was the biggest since 1950, showing companies are hoarding cash as concern grows that a European country will default on its debt and that deficit-reduction gridlock in Washington will continue. Without more pay and a pickup in hiring, households may ring in 2012 by making their own budget cuts.

“Businesses are very cautious so they’re not hiring and they’re not distributing their profits to consumers as they had in past expansions,” said Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York. “With slow wage and salary growth, consumer spending will be on a sluggish trajectory.”

Crisis in Europe

German Chancellor Angela Merkel on Thursday repeated her opposition to joint euro-area bonds, damping optimism that politicians will agree to use the potential remedy for the region’s woes.

Russia’s central bank today left the refinancing rate at 8.25 percent after two increases this year as Europe’s crisis exacerbates a cash shortage in the economy. Policy makers are trying to prevent capital from flowing out of the country as banks in western Europe withdraw cash to cope with the crisis.

In Asia, consumer prices in Japan fell in October for the first time since June, casting doubt on central bank forecasts for the world’s third-biggest economy to emerge from more than a decade of deflation. Costs excluding fresh food slid 0.1 percent last month from a year earlier, the country’s statistics bureau said. Commodity prices are sinking, reflecting risk of another global slump.

Spending Cools

The slowdown in U.S. consumer spending may already be on train after another Commerce Department report two days ago showed consumer spending, which accounts for about 70 percent of the world’s largest economy, rose 0.1 percent in October following a 0.7 percent increase in the previous month.

A pickup in spending in the third quarter, a 2.3 percent gain at an annual rate after a 0.7 increase in the previous three months, was the “the worst possible outcome,” Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp. in New York, said in a Nov. 22 interview on Bloomberg Television, since it was “entirely because of a draw down in savings.”

The savings rate dropped to 3.8 percent in the third quarter, the lowest level since the last three months of 2007, which marked the end of the previous economic expansion.

The plunge in savings came after consumers experienced two consecutive quarterly declines in after-tax income adjusted for inflation, the first back-to-back drops since the second half of 2009. Households may need to rebuild those nest eggs before the feel comfortable buying more than just basic necessities.

Profits Climb

A drive to preserve profits may be one reason behind the decrease in pay. Earnings climbed 2.1 percent last quarter to $1.98 trillion at an annual rate, making up 13 percent of the $15.1 trillion in gross domestic income, the most since 1950. At $8.25 trillion, employee compensation, including wages and supplements, accounted for a 56-year low 55 percent.

Companies making up the Standard & Poor’s 500 Index did even better than the rest in the third quarter. Earnings climbed 15 percent from July through September, according to results from the 464 companies in 500 Index that have reported since Oct. 11. Of those, 73 percent posted better-than-estimated earnings, data compiled (SPX) by Bloomberg show.

Profits at businesses in the S&P 500 in 2011 will rise 17 percent once the fourth quarter is reported, according to estimates from more than 10,000 analysts compiled by Bloomberg. That would give the benchmark gauge for U.S. equities the biggest two-year profit growth since 1995, the data show.

‘On Strike’

Surges in earnings normally lead to more hiring and rising incomes, said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio. With unemployment around 9 percent or higher for more than two years, that hasn’t panned out, he said.

“Companies are going on strike,” Mayland said. “They aren’t doing the things they would ordinarily do in a recovery with strong profitability. In 38 years, I’ve never seen such profitability levels not backed up by hiring.”

Mayland attributes the lack of job creation to companies’ ability to “squeeze” productivity from the existing workforce and “a tremendous amount of feeling of uncertainty coming from fear of higher costs, the regulatory and tax environment and a cloud overhanging from Europe.”

Record shares of consumers said last week it was both a bad time to spend and that their finances were in ‘poor’ shape, according to data from the Bloomberg Consumer Comfort Index.

Retailers are using discounts and promotions to lure consumers. Holiday sales may rise 2.8 percent this year, or about half of last year’s 5.2 percent gain, according to the National Retail Federation in Washington.

Retailer Concern

“Until the U.S. begins to see robust improvement in jobs and signs of recovery in the housing market, we believe consumer spending will likely continue to be soft and uneven,” Doug Scovanner, chief financial officer at Target Corp. (TGT), the second- largest U.S. discount retailer, said on a Nov. 16 call with investors.

Economists at Bank of America Corp. cut their U.S. growth forecasts this month by 0.2 percent point for each of the first three quarters of 2012, reflecting concern over the situation in Europe and consumer spending. They now project growth will average 1.6 in the first nine months of next year.