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U.S. economy seeing ups and downs

Consumer spending and home sales rise in recent months. But other data point to a still-fragile recovery.

October 02, 2009|Ylan Q. Mui

Government stimulus programs have provided a jolt of life for home sales and consumer spending in recent months, according to data released Thursday. But the nascent economic recovery remains fragile as consumer delinquencies hit record highs and weekly jobless claims rise more than expected.

Consumer spending in August jumped 1.3% from the previous month, compared with July's tepid 0.3% increase. That rise is bigger than many economists had expected and was driven by a government program that ended in August and gave consumers a credit of as much as $4,500 for trading in their old cars for new, more fuel-efficient ones.

"A continued but gradual recovery in consumer spending seems the most likely course," said Nigel Gault, chief U.S. economist for IHS Global Insight.

Sales of durable goods, which include cars, shot up 5.8% in August. Perhaps more significant, sales of nondurable goods rose 1% after falling 0.3% in July. Many states held sales tax holidays that month to encourage spending.

In addition to buying cars, consumers have rushed to take advantage of the $8,000 tax credit for first-time home buyers, which expires next month.

Pending home sales rose 6.4% in August, significantly more than expected, according to industry data released Thursday, indicating that home sales could continue to rise for the next few months. The index rose to 103.8, its highest level since March 2007, according to the National Assn. of Realtors. It was the seventh straight monthly increase.

The index increased in every region of the country. In the South, including the Washington region, pending sales rose 0.8%. The index measures the period after a buyer has signed a contract to buy a house but has not yet closed on the deal. It is viewed as an indicator of future home sales.

But those bright spots may be fleeting, especially as the government phases out stimulus programs, and many economists caution that the deep wounds from the recession have yet to heal.

In the manufacturing sector, a key report by the Institute for Supply Management showed business grew in September but at a lower rate.

The institute's index came in at 52.6 in September, the second consecutive month the reading has been above 50, which indicates growth. But the index was down slightly from August's reading of 52.9.

"It is a warning not to take the near-term strength of the economic recovery for granted," said Paul Dales, U.S. economist for Capital Economics.

Thirteen of the 18 industries surveyed in the index reported growth, led by the wood and paper product sectors and apparel. Also, 30% of businesses said they expected their industry to benefit from the government's stimulus package.

But economists' bigger concern is that consumers continue to be weighed down by job losses and debt accumulated during the boom times.

Weekly jobless claims rose to 551,000 last week, up 17,000 from the previous week and more than forecast. The increase is a sign that companies are still cutting back on labor and remain cautious about the prospects for recovery. The four-week average for jobless claims was 548,000.

Delinquency rates hit record highs during the second quarter on home equity loans and lines of credit as well as bank cards, to 4.01% from 3.52% in the first quarter, according to the American Bankers Assn.


Mui writes for the Washington Post.

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