October 6, 2010
Construction Spending Rises On Jump In Government Building

WASHINGTON  — Economic reports released Friday offered the latest data points for an economy that was sputtering along.

The Commerce Department reported that construction spending rose in August as a big jump in government building projects offset further weakness in the private sector.

And the latest survey by the Institute for Supply Management showed that manufacturing dropped to 54.4 percent in September from 56.3 percent in August. Economists surveyed by Reuters was for a reading of 54.5. Still, any number above 50 indicates an expansion.

Strong growth in the industrial sector has helped lift the country out of the recession. Last month’s report was better than expected and was a factor in Wall Street’s September rally.

In addition Friday, consumer spending and income rose as did consumer sentiment. The survey of consumer sentiment by the Thomson Reuters and the University of Michigan fell to 68.2 from 68.9 in August. Economists had expected a reading of 67.

The gains in construction spending in August came in government projects, the Commerce Department said. The weakness in construction activity has been a major drag on the overall economy.

Overall, construction spending edged up 0.4 percent in August after 1.4 percent drop in July. While spending on government projects rose 2.5 percent, spending on private construction projects dropped to the lowest level in 12 years.

Consumer spending rose by a moderate amount in August while incomes increased by the largest amount in eight months, a gain that was propelled by the resumption of extended unemployment benefits.

The Commerce Department said Friday that spending increased 0.4 percent in August, matching the July increase. The two increases followed June’s flat reading on consumer spending.

Incomes were up 0.5 percent, better than a 0.2 percent rise in July and a flat reading in June.

More spending and increased income is helping to sustain the economy, which is growing at a slow rate.

Consumer spending accounts for 70 percent of total economic activity in the United States and until it returns to a stronger pace, the rebound from the recession will be held back. But spending is not likely to see a big gain until income growth accelerates.

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 incomes in the July report by about $17 billion at an annual rate.

The jobless benefits program resumed in August and that lifted incomes in the August report by approximately $21 billion.

The two consecutive 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 crucial gauge of inflation tied to consumer spending showed prices rose a slight 0.2 percent in August. Excluding food and energy, prices were up 0.1 percent. This price gauge is up 1.4 percent excluding food and energy over the past year, indicating that the weak economy has essentially banished inflation as a threat at the moment.

Source: Associated Press, October 1, 2010

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