North County incomes have failed to keep pace with inflation in yet another indicator that the region has entered a recession.

Rising gasoline prices along with an increased cost of food have pushed up the cost of living, while fewer jobs and weaker consumer spending mean local residents are not earning enough to keep up, according to a release Tuesday by the U.S. Census Bureau.

Further, the release reports numbers only through 2007, and recent jobs reports suggest the economy has weakened further this year.

“This is a story of a grim, stagnant economy between 2006 and 2007. And it’s really the best we’ll see in this economic cycle,” said Murtaza Baxamusa, research director for the Center on Policy Initiatives, a San Diego think tank.

Going back to 1999, wages have tracked inflation, meaning residents can buy the same amount of goods with their income they could nine years ago.

Even more worrying to economists, median household income, where half of households earn more and half earn less, dropped in several North County cities from 2006 to 2007.

San Marcos led all income declines in North County, down 7 percent in a year, or 9 percent after counting for inflation.

Because the numbers carry a large margin of error, about 8 percent for most cities, some of the declines might be a statistical aberration.

But the increased costs in gas and food are very real for residents such as Glenn Saxton of Pauma Valley.

“We’re running behind on (utility) payments,” said Saxton, a disabled veteran living on a fixed income. “The house, we make sure that payment is made. We can live without electricity or propane, but you have to have a place to live.”

Saxton’s struggles to pay the grocery bill is not reflected in Tuesday’s data release; inflation rose more dramatically over the last five months than it did in all of 2007, according to the Bureau of Labor Statistics.

With more money spent on food, and wages remaining flat or falling slightly, economists said the retail sector, the largest source of employment in San Diego County, will struggle through the rest of the year as consumers cut down on discretionary spending.

“This summer, it hasn’t been a complete disaster, but I don’t think we’ll see a gain from a year ago for consumer spending,” said Kelly Cunningham, an economist with the San Diego Institute for Policy Research, another think tank.

Cunningham said he expects the holiday shopping season to be likewise weak.

No income group appears to be immune, as Carlsbad posted one of the biggest drops in income, down 5 percent during that time. Adding in the devaluation of the dollar, households earned 8 percent less.

That could mean more problems for Sacramento, where the state government already faces a $15 billion budget deficit.

“Because we have a progressive tax system where higher-income individuals pay more, if the upperincome households are facing some declines, that’s going to more than proportionately reduce the state revenue take,” said James Hamilton, an economics professor at UC San Diego.

On the other hand, previous data releases such as job reports indicated that middle- and lowerincome residents were suffering even more, as their jobs have disappeared, most notably in construction and retail.

But that did not show up in the census data released Tuesday, as cities with lower median incomes, such as Oceanside and Escondido, posted small drops or nominal gains in wages. Some economists speculated the contradiction might be the result of high foreclosure rates in those cities, forcing residents out of the area or to move in with other family members, adding to the household income.

That conclusion —- combined with weak jobs reports over the last several months —- has essentially sunk the argument put forward a year ago that though the national economy might enter a recession, San Diego County would avoid an economic downturn because of its strong tourism businesses.

“We thought we were buffered and we would avoid the weakness the rest of the country was seeing,” said Baxamusa, the economist with the Center on Policy Initiatives. “But 2008 has shown us how vulnerable we are.”