Personal wealth rising again despite job loss

Washington: Providing more evidence that the US economy has turned a corner, personal income grew in November at the fastest rate in six months and is poised to accelerate in 2010, according to new government and private reports.

After plunging early this year, total personal income rose 0.4 per cent last month, marking the fifth straight monthly advance, the Commerce Department said recently. The gain was all the more notable because it came as the economy continued to lose jobs.

But the increase was relatively modest compared with income gains before the recession that began two years ago, and income growth could remain weak next year. In addition, with persistently high unemployment and continued uneasiness about the economy, Americans are saving much more of their after-tax income than they have for some time.

As a result, consumer spending and the economy as a whole are likely to remain lacklustre for some time, in the view of many economists.

"It is encouraging that income appears to be growing at a steady pace," Paul Dales, an economist at the research firm Capital Economics, said in a research note. "But income growth of less than 2 per cent will not be enough to drive a significant recovery in consumption. ... We fear that the economic recovery will fade in the second half of next year."

Part of the latest increase in personal income stemmed from growth in hours worked, rather than higher rates of pay. Although most workers might prefer the latter, increased hours are usually a leading indicator of a strengthening job market and overall economy. That's because employers tend to increase the hours — and thus the pay cheques — of existing workers before adding new names to their payrolls.

Uncertainty

Separate Commerce Department figures showed new-home sales plunged last month, and with federal stimulus programmes fading next year, many analysts are wondering what will propel an economy that has relied on consumer spending for about 70 per cent of its activity.

"There's so much uncertainty out there," said Loree Griffith, a principal at Mercer, a human resources consulting firm.

Although fewer large businesses are planning to freeze wages next year — 14 per cent compared with 30 per cent in 2009 — employers are budgeting pay rises averaging just 2.3 per cent in 2010, up only fractionally from 2.1 per cent a year earlier, according to Mercer's annual survey of employee compensation.

That's barely enough to keep up with inflation and pales next to the 4 per cent or so annual salary increases in most of this decade.

The outlook is not necessarily more promising for workers at smaller businesses. "You know, I am going to wait and see," said Steve Hasty, president of A&E Custom Manufacturing, when asked whether he was planning rises for next year.

The Kansas metal fabricator is ending 2009 with 45 employees, the same number the business started the year with.

But in between, the company's payroll was on a roller-coaster.

A&E laid off and then recalled seven workers, and everyone's wages were sliced by 10 per cent early in the year.

In September, Hasty reinstated the previous pay rates. And, on revenue of $5 million (Dh18.35 million) this year, the company eked out a $100,000 profit — 10 per cent of which Hasty divvied up as Christmas bonuses to his workers.

Still, with sales projected to be down 15 per cent from 2008 levels next year, Hasty says, he and many of his employees remain in a hunkered-down mode.

That sums up the situation at businesses and homes across the country. Both are paring debt and spending cautiously.