Housing is in recession, a factory downturn lingers and companies are cutting investment. Even so, buoyant American consumers propelled the economy into its 65th month of expansion this week.
Rising wages and a jobless rate that's close to a five-year low are giving consumers the means to keep spending and maintain economic growth, albeit at a slower pace. More people consider jobs abundant, according to the Conference Board, whose March survey showed consumer confidence above the 2006 average.
The official unemployment rate is 4.5%. This has led to an increase in wages:
Personal income increased $65.4 billion, or 0.6 percent, and disposable personal income (DPI) increased $53.8 billion, or 0.5 percent, in February, according to the Bureau of Economic Analysis.
Personal consumption expenditures (PCE) increased $55.5 billion, or 0.6 percent. In January, personal income increased $110.5 billion, or 1.0 percent, DPI increased $74.2 billion, or 0.8 percent, and PCE increased $50.2 billion, or 0.5 percent, based on revised estimates.
Bernanke noted this trend in his latest Congressional testimony:
Employment has continued to expand as job losses in manufacturing and residential construction have been more than offset by gains in other sectors, notably health care, leisure and hospitality, and professional and technical services, and unemployment remains low by historical standards. The continuing increases in employment, together with some pickup in real wages, have helped sustain consumer spending, which increased at a brisk pace during the second half of last year and has continued to be well maintained so far this year. Growth in consumer spending should continue to support the economic expansion in coming quarters. In addition, fiscal policy at both the federal and the state and local levels should impart a small stimulus to economic activity this year.
This makes Friday's employment report that much more important because it is one bright spot in the economy. Also pay attention to the "inside numbers" -- population growth, job growth related to population and the labor participation rate. Those figures will tell us the depth of the labor market.
