Tags: Economy

Economy Offers Mixed Picture Day before Election

Monday, 01 Nov 2010 12:43 PM

 

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WASHINGTON (AP) — A mixed picture of the economy emerged one day before key midterm elections that have focused on the nation's financial health.

Spending by Americans slowed in September and their incomes fell for the first time in more than a year. At the same time, manufacturing activity grew by the most in five months and the weak construction industry showed a little life.

The new data suggests the economy is growing, albeit at an anemic pace.

"It is encouraging that economic growth no longer appears to be slowing. Nonetheless, the economy is not growing fast enough to reduce the unemployment rate or boost inflation," said Paul Dales, U.S. economist with Capital Economics

Consumer spending rose at an annual rate of 0.2 percent in September, the Commerce Department said Monday. That's below the 0.5 percent gains recorded in July and August.

Incomes fell 0.1 percent in September, following a 0.4 percent rise in August that had been pushed higher by the return of extended unemployment benefits.

A separate report showed manufacturing activity expanded last month at the fastest pace since May — the 15th straight month for growth. The Institute for Supply Management said its manufacturing index read 56.9 in October, up from 54.4 in September. A reading above 50 indicates growth.

And the struggling construction industry posted small gains in September, buoyed by increases in government projects and residential spending. The Commerce Department said spending on building projects rose 0.5 percent after having falling in August to the lowest point since July 2000.

Even with the small September gain, construction activity remains 34 percent below the peak hit in 2006 when builders were enjoying a boom in residential housing.

The drop in incomes was the first decline since incomes fell 0.3 percent in July 2009. The August gain had been skewed by the reinstatement of an extended unemployment benefits program, which had temporarily lapsed in July after Republicans had blocked an extension.

Those extended benefits expire at the end of November. It's unclear if Democrats can muster enough votes to pass one more extension of benefits before the year ends.

Consumer spending is watched closely because it accounts for 70 percent of total economic activity.

The government reported Friday that the economy grew at an annual rate of 2 percent in the July-September quarter. That's only slightly better than 1.7 percent growth in the April-June quarter.

Many economists believe that growth in the current quarter will be little changed from the third quarter.

Consumer spending had helped boost third-quarter growth. It was the best showing since a 4.1 percent rise in consumer spending at the end of 2006, before a severe recession hit.

However, Monday's report suggested the strength occurred in July and August and that spending slowed considerably in September.

The savings rate fell to 5.3 percent in September, the lowest rate since August 2009. But it is still well above the 2.1 percent average savings rate for all of 2007.

An inflation gauge tied to consumer spending rose a slight 0.1 percent in September and was flat after excluding volatile food and energy.

In response to the weak economy, the Federal Reserve this week is expected to announce a program to buy Treasury bonds. The effort is designed to drive interest rates lower and spur economic activity.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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