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Govt Aid Boots U.S. Economy
- By Williams Ekanem
- Published October 11th, 2010
- Washington File
- Unrated
A flurry of new data last weekend showed the economy is improving — with temporary help from the government. Consumer spending rose 0.4 percent in August and incomes increased 0.5 percent, the largest gain in eight months, the Commerce Department said. Still, the income gain was propelled mostly by the government’s short-term extension of unemployment aid, not wage gains.
A big jump in government building projects lifted construction spending in August 0.4 percent, Commerce said in a separate report. That offset the weakest level in private construction spending in 12 years.
Separately, a private trade group said manufacturing activity expanded in September for the 14th straight month, although it was the slowest pace in 10 months. The Institute for Supply Management said its manufacturing index read 54.4 in September. A reading above 50 indicates growth. The reports point to an economy that is growing, but at a sluggish rate and not fast enough to drive down the 9.6 percent unemployment rate.
Consumer spending accounts for 70 percent of total economic activity and until it returns to a stronger pace, the rebound from the recession will be held back. Spending isn’t likely to see a big gain until income growth accelerates.
The overall economy grew at an annual rate of 1.7 percent in the April-June quarter.
Many economists expect growth to be around 2 percent for the rest of the year, mainly because of the weak growth in consumer spending.
“Consumption growth is unlikely to gain any real momentum when incomes are rising only modestly and households are still saving,” said Paul Dales, senior economist at Capital Economics.
The August rise in incomes would have been much lower — just 0.2 percent — without the extended unemployment benefits. The program had temporarily lapsed in July after Republicans blocked an extension.
That lowered the total for incomes in the July report by about $17 billion at an annual rate.
The jobless benefits program resumed in August after Democrats gained enough votes to pass an extension through November. That boosted the total for incomes in the August report by approximately $21 billion. Two straight months of 0.4 percent gains in spending bolstered confidence that the country is not slipping back into a recession, fears that had been fueled by flat readings on spending in both April and June.
With incomes up slightly more than spending, the personal savings rate edged up to 5.8 percent of after-tax incomes in August. It was 5.7 percent in July. Both are much higher than the 2.1 percent average for the savings rate in 2007, before the recession began.
A big jump in government building projects lifted construction spending in August 0.4 percent, Commerce said in a separate report. That offset the weakest level in private construction spending in 12 years.
Separately, a private trade group said manufacturing activity expanded in September for the 14th straight month, although it was the slowest pace in 10 months. The Institute for Supply Management said its manufacturing index read 54.4 in September. A reading above 50 indicates growth. The reports point to an economy that is growing, but at a sluggish rate and not fast enough to drive down the 9.6 percent unemployment rate.
Consumer spending accounts for 70 percent of total economic activity and until it returns to a stronger pace, the rebound from the recession will be held back. Spending isn’t likely to see a big gain until income growth accelerates.
The overall economy grew at an annual rate of 1.7 percent in the April-June quarter.
Many economists expect growth to be around 2 percent for the rest of the year, mainly because of the weak growth in consumer spending.
“Consumption growth is unlikely to gain any real momentum when incomes are rising only modestly and households are still saving,” said Paul Dales, senior economist at Capital Economics.
The August rise in incomes would have been much lower — just 0.2 percent — without the extended unemployment benefits. The program had temporarily lapsed in July after Republicans blocked an extension.
That lowered the total for incomes in the July report by about $17 billion at an annual rate.
The jobless benefits program resumed in August after Democrats gained enough votes to pass an extension through November. That boosted the total for incomes in the August report by approximately $21 billion. Two straight months of 0.4 percent gains in spending bolstered confidence that the country is not slipping back into a recession, fears that had been fueled by flat readings on spending in both April and June.
With incomes up slightly more than spending, the personal savings rate edged up to 5.8 percent of after-tax incomes in August. It was 5.7 percent in July. Both are much higher than the 2.1 percent average for the savings rate in 2007, before the recession began.
