US incomes, consumer spending see gains in November

US personal incomes rose for the fifth straight month, spurring an increase in consumer spending and buoying hopes for an economic rebound. However, the gains appear to depend heavily on government stimulus programs.

By , Staff writer

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    In this Nov. 27 photo, a customer pulls a cart filled with a flat screen television and other items during the traditional Black Friday shopping day at the Target store in Mayfield Heights, Ohio. Personal incomes rose in November at the fastest pace in six months, while spending posted a second straight increase.
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American incomes rose in November for the fifth straight month, providing much-needed traction for economic recovery.

The overall personal income earned by Americans rose by 0.4 percent in the month, according to numbers released by the Commerce Department Wednesday.

That fueled a gain in consumer spending, which rose 0.5 percent from October.

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Another jolt of positive news: Consumer confidence rose in a December survey by the University of Michigan and Reuters.

The picture is still not one of a brisk rebound for the economy. Much of the gain in incomes continues to come from government stimulus programs, and the gains in income and spending are smaller when inflation is taken into account. (Adjusting for inflation, personal income rose 0.2 percent in November. The gain was just 0.1 percent when the impact of government transfer payments is subtracted.)

Still, the report bolsters the confidence of forecasters that the economy is beginning to find its footing. Treasury Secretary Timothy Geithner weighed in with guarded optimism Wednesday, saying in a morning interview on ABC that it's reasonable to expect "positive job growth" by spring, and that people should have confidence about an improving economy.

"Consumers are sensing that the economy is picking up," said Brian Bethune, an economist at IHS Global Insight, in a written analysis of the University of Michigan survey. "Retail sales could perform very respectably in December, and perhaps better than chain store indicators are currently indicating," he said, citing strong reports from UPS and Federal Express as a possible indicator of online retail transactions.

Mr. Bethune predicts that Gross Domestic Product (GDP) will rise in the fourth quarter at a 4 percent annual pace, up from the third quarter's 2.2 percent rate, which the government reported Monday.

Consumer spending has risen in six of the past seven months. Still, the trends in personal income and spending suggest the rebound has relied heavily on stimulus and support from the government.

Aided by stimulus programs including tax cuts and expanded unemployment insurance, US consumer spending is now 1.5 percent higher than it was at the end of 2008, in real terms (adjusted for inflation). But real spending by consumers is still 0.8 percent below where it stood as the recession began in December 2007.

Americans have about the same amount of disposable income now as when the recession began, on an inflation-adjusted basis. But stimulus programs and other government transfers been a big part of that stability. Excluding the impact of government transfer payments, real personal income in America is about 6 percent lower now than in the final quarter of 2007.

Still, economists general predict that the conditions are in place for modest growth in the private sector economy – based on rising wage income, consumer spending, a likely return of job creation.

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