Data on spending, construction, auto sales signal sluggish growth continues

By Martin Crutsinger
Associated Press / October 2, 2010

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WASHINGTON — A flurry of new data yesterday showed the economy is improving — with temporary help from the government.

Consumer spending rose in August and incomes increased by the largest amount 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, 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.

And auto sales were a little better in September, thanks to the introduction of new car models and Labor Day promotions. Sales at Chrysler Group LLC and Ford Motor Co. rose slightly from August. They fell at General Motors Co. and were flat at Toyota Motor Corp. Car companies say a recovery is progressing, but it’s not as strong as they had hoped following a terrible 2009.

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 rose 0.4 percent in August, matching the July growth rate. Spending by Americans accounts for 70 percent of total economic activity. Until it returns to a stronger pace, the rebound from the recession will be held back. And spending isn’t likely to see a big gain until income growth accelerates.

“Consumers are spending moderately, saving moderately, and making money moderately, which all point to moderate economic growth,’’ said Joel Naroff, chief economist at Naroff Economic Advisors.

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 0.5 percent rise in August 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 reduced 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.

Income from all sources totaled $12.57 trillion at an annual rate in August. The biggest part of that was wages and salaries, which accounted for 50 percent of income.

By comparison, government unemployment benefits equaled $146.9 billion at an annual rate, or about 1 percent. Total government benefits equaled 18.5 percent.