Personal income among Hawaii residents rose modestly in the third quarter, helped by an increase in government benefits, according to a new report.

Personal income — which includes wages, interest, dividends, rent and government payments — climbed 0.8 percent in the state during the July-to-September period compared with the previous three months, the U.S. Bureau of Economic Analysis reported. It followed a 0.5 percent rise in the second quarter and continued a string of moderate increases dating back to last fall. The improvement followed a period of recession-induced weakness that saw personal income fall for much of 2008.

The third-quarter gain compared with a 0.7 percent increase nationally. Hawaii was one of six states where personal income growth accelerated. Growth slowed in 41 states and was unchanged in three others.

Of the three main personal income categories the biggest increase on a percentage basis was in transfer receipts, which includes unemployment benefits, Medicaid payments, food stamps and other government benefits, according to the report. Transfer payments rose by $124 million, or 1.4 percent in the third quarter. Net earnings, which includes wages and salaries, rose by $343 million, or 0.9 percent. Income from dividends, interest and rent fell by $36 million, or 0.4 percent.

Earnings were higher or unchanged in all industries except for the construction and real estate sectors. Hawaii’s 0.19 percent decline in construction earnings was second nationally only to Nevada’s 0.22 percent, the bureau reported.

Slow growth in personal income reflects pace of recovery in the broader economy, said Andrew Kato, an economist at the University of Hawaii Economic Research Organization.

"For the past two quarters or a little longer we’ve been seeing signs of a slow but steady recovery in the economy. And personal income is coming along with that," Kato said. "It’s not as fast as people like, but at least it’s not getting worse. It’s going to take us two to three years to get back to close to anything normal."

An increase in transfer payments is typical during economic slowdowns when many people are out of work and collecting government benefits, Kato added.

"People’s earnings go down as they are laid off. They’re not getting a paycheck, but they’re getting unemployment benefits. It’s one of the best forms of economic stimulus."

The state Department of Business, Economic Development and Tourism is forecasting personal income for all of 2010 to rise by 2.7 percent. However, most of that increase will be lost to inflation, which the department estimates will be 2.2 percent this year. That would result in an inflation-adjusted increase of just 0.5 percent in personal income.