WASHINGTON -- A government report issued yesterday showing solid gains in personal income and spending in August boosted analysts' confidence that the economy is getting stronger after a weak performance during the first half of the year.
"I see some lift in the economy, and I think we're going to see a better growth rate persist through the second half of the year," said Robert Brusca, chief economist for Nikko Securities Co. International. "I think it's going to be a bit of a problem for the bond market, but it's a rebound from a period of very weak growth."
The Commerce Department reported that personal income surged 1.3% in August, more than erasing declines of 0.3% in July and 0.1% in June.
Personal spending, which accounts for two-thirds of gross domestic product, advanced a solid 0.4% for the second month in a row. The monthly increase was the fifth in a row. Analysts calculated that third-quarter consumption advanced at a rate of about 4.5%, probably enough to assure at least 3% growth in GDP.
That kind of growth would be a welcome relief for the Clinton administration, which saw GDP growth crawl along at 1.3% during the first half of the year.
Commerce officials said yesterday the personal income figures for July and August were warped by floods in the Midwest and a drought in the Southeast. Excluding measurable effects of both events, income posted sturdy gains of 0.5% in July and 0.6% in August.
Analysts were impressed because private wages and salaries advanced at an annual rate of $25.6 billion, with gains in all major categories of business. Roughly two-thirds of the increase came among service industries, which account for the bulk of jobs in the private sector and have been doing better than manufacturing firms.
"Personal income growth is a catching up with consumption. That's a good sign," said Mickey Levy, chief financial economist for NationsBank. "One of the complaints earlier this summer was that while consumption was strong, we didn't have the personal income growth to substantiate it, and now we do."
Levy estimated that real GDP in the third quarter may be up between 3.5% to 4%. "The consumer is driving the ball here, and it looks like a strong quarter," he said.
Other data released yesterday reinforced the notion that the economy is picking up steam. The Labor Department reported that initial jobless claims fell 11,000 to 329,000 in the week ended Sept. 25, and the Chicago purchasing managers' index was up.
The main sour note yesterday was a separate report from the Commerce Department that sales of new single-family homes tumbled 3.1% in August to 616,000, the second straight monthly decline. Sales fell in all regions of the country except the Northeast.
However, analysts said the figures did not indicate any broad weakness in the economy, and they noted that weekly surveys from builders and mortgage bankers have been showing a pickup in the housing market. The Mortgage Bankers Association yesterday said its latest survey showed a decrease of 9% for the week ending Sept. 24 in mortgage loan applications. But compared to the same period a year ago, the index was up 45%.
"Housing continues to play games with us," said Robert Dederick, chief economist for Northern Trust Co. in Chicago. "Whenever we begin to feel good about housing, it disappoint us, but these numbers are not indicative of what's going on."
Even with the downturn in new home sales, sales through August were still up 5.8% compared to the same period last year.
"The basic message is that there's a quickening underway," said Dederick. "It's not big time, and it's not a real live, old-fashioned expansion, but nonetheless we're beginning to see signs that the slowdown that was so evident in the first half seems to be breaking up."
Analysts are looking for more evidence that the economy is doing better in a report due out today from the National Association of Purchasing Management for September. The report will probably show a recovery in manufacturing, which was suggested by the big increase in the Chicago purchasing managers' index, said Richard Rippe, chief economist for Prudential Securities Inc.
In addition, the Commerce Department is expected to report a large increase today in the index of leading economic indicators for August.