Bernanke: Rising incomes will spur consumer spending

The business sector, specifically manufacturing, has bolstered the nation's economic recovery, as investments in equipment and software have rapidly increased and U.S. exports have continued to grow. 

Manufacturing increased more than expected in July although figures were slightly down from June. 

"To be sure, notable restraints on the recovery persist," Bernanke told the Southern Legislative Conference. "The housing market has remained weak, with the overhang of vacant or foreclosed houses weighing on home prices and new construction."

Bernanke focused on the effects of the nation's recession on growing local and state budget issues saying they are "weighing on economic activity." While the recession has affected those budgets, the budgetary issues faced now by states could, in turn, slow the nation's economic recovery. 

Cuts in state and local programs and employment, as well as Medicaid spending, are putting pressure on state budgets. 

For the 15 states represented in the Southern Legislative Conference state tax revenues fell about 10 percent in 2009, similar to the average of all states, he said. 

Nearly two-thirds of leading economists surveyed by the Associated Press see the state budget crisis as “a significant or severe threat” to the economic recovery, according to the Center for Budget and Policy Priorities.