Consumers are being thrashed by economic and financial turbulence, according to economic data released today. Three reports showed consumers are having an increasingly tough time getting by, and have grim expectations of the future.

Employment costs, which represent wages and benefits, increased by 3.2% in the third quarter, as compared with the same quarter last year, according to the Labor Department’s Employment Cost Index. This represents the slowest growth since the second quarter of 2006. Wages grew 3.3% as compared with last year, and benefits were up by 2.8%.

Although wages and benefits continue growing, the benefits number highlights a troublesome trend. Benefits grew at the slowest rate since the fourth quarter of 1999. As employers are forced to cutback on benefits due to increased economic headwinds, employees have to foot more of the bill for their own benefits. As a result, consumers could have less disposable income to spend on other items.

The Commerce Department’s Personal Income and Outlays report corroborates that notion to some extent. Consumer expenditures were down a 0.3% in September, which represents the largest decline since May 2005. Personal income continued to rise, but at half the rate it did last month, showing deterioration in wages as companies are cutting back. Economists see this as a sign that consumption is going to continue to drop in the fourth quarter.

“The September personal income and outlays report showed that the trajectory for real consumption at the end of [third quarter] was quite negative, confirming that consumer spending in [fourth quarter] will likely be well below the [third quarter] level,” JPMorgan Chase economist Abiel Reinhart wrote in a research note.

These two reports show inflation is in check for the moment, which is good news for policymakers. The Federal Reserve has been injecting enormous amounts of liquidity into the marketplace, which is generally seen as inflationary.

“With inflation disappearing from the radar screen as a major threat to the outlook, the Federal Reserve has a green light to not only move interest rates down aggressively, but also apply significant leverage to its balance sheet to unlock the credit markets,” IHS Global Insight economist Brian Bethune wrote in a research note.

Consumers are also pessimistic about the future. The University of Michigan/Reuters consumer sentiment index showed consumer sentiment plummeted to 57.6 in late October, compared with 70.3 in late September. People generally spend money based on their expectations of future conditions, not current conditions, so consumer sentiment is an important indicator of future consumption.

Taken together, these reports could be an indication that the economy is going to contract substantially in the fourth quarter.

“The economy is now navigating through the eye of the storm, with recessionary forces intensifying in the fourth quarter of 2008,” Bethune wrote.

Credit issues and high commodity prices that have been plaguing consumers in recent months are beginning to recede, which will ultimately be beneficial for consumers, Bethune notes.

“There is still a long distance to run in this marathon, but the logjam in the credit markets is starting to break, and that is a key ingredient to getting credit flows and the economy back on track,” he said.