Election-eve economy on uneven pace

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WASHINGTON --- A mixed picture of the economy emerged one day before key midterm elections that have focused on the nation's financial health.

Spending by Americans slowed in September, and their incomes fell for the first time in more than a year. At the same time, manufacturing activity grew by the most in five months and the weak construction industry showed a little life.

The new data reported by the government and a private trade group Monday suggest the economy is growing, albeit at an anemic pace. Some analysts worry that conditions could worsen after the election when government programs that have been propping up the economy end.

"With the job market as tough as it is and with government help beginning to fade, income gains are going to be very hard to come by," said Mark Zandi, the chief economist at Moody's Analytics.

Consumer spending is growing, but at a much slower rate than during the summer. It rose 0.2 percent in September after 0.5 percent gains in July and August, the Commerce Department said.

A major reason spending is slowing is that incomes fell for the first time since July 2009, just after the recession officially ended. The 0.1 percent decline in September followed a 0.4 percent rise in August that had been pushed higher by the return of extended unemployment benefits.

A separate report showed manufacturing activity expanded last month at the fastest pace since May -- the 15th straight month for growth. The Institute for Supply Management said its manufacturing index read 56.9 in October, up from 54.4 in September. A reading above 50 indicates growth.

The struggling construction industry posted small gains in September, buoyed by increases in government projects and residential spending. The Commerce Department said spending on building projects rose 0.5 percent after having fallen in August to the lowest point since July 2000. Even with the small September gain, construction activity remains 34 percent below the peak hit in 2006 when builders were enjoying a boom in residential housing.

"It is encouraging that economic growth no longer appears to be slowing. Nonetheless, the economy is not growing fast enough to reduce the unemployment rate or boost inflation," said Paul Dales, a U.S. economist at Capital Economics.

Incomes fell in September after getting a notable boost in August from the reinstatement of an extended unemployment benefits program. The program had temporarily lapsed in July after Republicans had blocked an extension.

Those extended benefits expire at the end of November. It's unclear whether Democrats can muster enough votes to pass another extension of benefits during a lame-duck session of Congress this month, especially in light of expected Republican election gains today.

Zandi estimates about 1 million jobless workers a month, over six months, would be cut off from benefits if Congress declines to extend the program after the election.


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