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Sentiment among barbers, shopkeepers and other merchants on the front lines of the economy dropped in August as consumer spending slowed and financial markets slumped, the Cabinet Office said Monday.

The Economy Watchers index, a gauge of domestic demand, fell to 44.1 points, the fifth straight decline. The economy shrank at a 1.2 percent annual rate in the three months that ended June 30 as business spending slumped, the Cabinet Office also said Monday. That report also showed consumer spending, which accounts for more than half of the economy, expanded at less than half the pace of the previous quarter as average salaries declined.

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