With the credit morass, deflation in the housing sector, and high energy prices some have predicted that the American consumer is in retreat. Surveys such as the University of Michigan Consumer Sentiment Index certainly have shown some erosion in psychology. But at the end of the day what matters most are jobs and income.
There has been a slight increase in unemployment the last few quarters, up from 4.5% to about 4.7%. This is still a very strong employment number - 5% unemployment is traditionally considered by economists to be "full employment". Last month's job creation number was a substantial 166,000.
Real disposable income (income you get from working, after taxes, after inflation) is growing at better than 4 percent. That is really strong earnings growth.
Gas prices are high, but money spent on gas as a percent of disposable income, has decreased from about 2.7% in 1995 to only about 2% today. Energy consumption necessary to produce a dollar of GDP has fallen by 50% since 1970. Energy prices do not have the same affect on our economy that they did 30 years ago.
It is hard to drag down an economy that has a strong services and consumer base.
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