Consumer spending has other supports in addition to income. Households have also reduced many encumbrances on their income flow over the past few years. Debt service obligations have fallen to slightly over 16% of after-tax income, well down from almost 19% just before the recession and even from the 16.4% registered a year ago. Indeed, today such obligations stand at lows not seen since 1993. The relief has effectively given household budgets an added fillip above what they got from wage growth of about half a percent during the past year and more than 2.3% since the recovery began in 2009. This improvement helps explain why consumer spending has expanded despite subpar employment growth and can continue to do so even if the jobs picture continues to disappoint.

Offering further relief to household finances and so supporting consumer spending has been a drop in debt charge-offs. According to the Federal Reserve, some 1.24% of total loans and leases were charged off in the first quarter, the most recent period for which complete data are available. A year ago, charge-offs ran at 2.27%, after peaking at over 3% late in 2009. Improvement has occurred in mortgages, where charge-offs have fallen from a peak of 2.8% late in 2009 to 1.44% most recently. Credit cards have shown the most progress, with charge-offs dropping from a peak of 10.26% in late 2009 to 4.25% most recently. Though none of this improvement necessarily puts money in the consumer's pocket, by lifting a cloud of fear it has no doubt encouraged easier spending.

The drop in gasoline prices does effectively put money in the consumer's pocket. Since last April, when gasoline broke above $4 a gallon in much of the United States, the price has fallen on average by some 65 cents, or almost 16%. The average American spends between 8% and 9% of his or her household budget on gasoline, so the price decline has effectively freed up an additional 1.4% for general consumption. Though the figure may seem small stated in this way, when taken across all household budgets, it equals some $160 billion. Put another way, it is the equivalent of a 1.2-percentage-point drop in average income tax rates. So far, this relief has not shown up in measures of consumer spending except as a drop in nominal spending on gasoline. It almost certainly will boost general spending flows.

None of this points to a boom in the consumer sector or elsewhere in the economy. Employment remains an important consideration and so far a source of weakness in the growth equation. Neither do these observations stand as proof against adverse shocks. But the improvement in household finances and cash flows does nonetheless warn against the great temptation to see matters in an entirely negative light and against the forecasts of impending recession that inevitably emerge from such sentiments.