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American incomes up slightly, easing fears of double-dip recession

Data continue to point to a tepid economic recovery for the US rather than a dip into a second recession. The latest clue: Incomes were up for Americans in August, but only 0.5 percent.

By Staff writer / October 1, 2010

A shopper buys paper towels at Costco in Mountain View, Calif., on Sept. 8. Consumer spending rose by a moderate amount in August.

Paul Sakuma/AP/file

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Americans saw their incomes grow modestly in August, lending support to the view that the US economy will keep growing rather than falling back into recession.

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Incomes rose by 0.5 percent for the month on average, although the gain was a more tepid 0.2 percent after adjusting for inflation. Spending rose in tandem, at a 0.4 percent pace, the Commerce Department said.

Many struggling households saw their incomes rise due to a resumption in federal aid for workers who have been unemployed for an extended time. (A lapse in those extended benefits helped to push personal incomes down in July.)

Still, family incomes are rising for other reasons as well. Private sector wages, small-business earnings, and rental-property income all rose in August. And gains in those areas have helped to push inflation-adjusted incomes up by 1 percent since January, on a per-capita basis.

That's not robust growth, but it's a key reason the economy has been growing. The Friday report on incomes comes as other recent indicators also align with this scenario of tepid growth, with no recession but not much momentum to spur employer hiring:

  • The stock market rose strongly during September, with the Dow Jones Industrial Average posting a roughly 8 percent gain as fears of a "double dip" into recession faded.
  • An index of manufacturing activity, released Friday, cooled a bit but still indicates growth rather than contraction. The Institute for Supply Management's index declined to a level of 54.4 in September, down 2 points but still above the "neutral" level of 50.
  • Job-market indicators haven't gotten worse, but also haven't improved much. The number of people filing new claims for unemployment benefits was 453,000 in the week ending Sept. 25, down from the prior week but still much higher than would occur during a strong expansion.

"Consumers are spending on needs and not wants," Chris Christopher, an economist at IHS Global Insight, wrote in an analysis of the income and spending numbers.

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