Amid the country's diverse economic problems, it iseasy—too easy—to focus on the dark side of everything. However muchmaterial there is on that unattractive side of the ledger, peopleshould not lose sight of positive developments. Especially wherethe American consumer is concerned, matters have improved markedlyover the last four years, although they're still far fromuniversally robust. With consumption making up some 70% of theeconomy, the improvement raises serious doubts about today'spopular and sometimes extreme pessimism, especially the frequentforecasts of another recessionary dip.

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To be sure, the poor jobs market raises all sorts of legitimatequestions about the resilience of the consumer sector andconsequently the entire cyclical recovery. As of June, the LaborDepartment reported that people on nonfarm payrolls totaled just133 million. Though that's a gain of over 4 million from the lowduring the 2008-2009 recession, the level still speaks to a subparrecovery in which net new jobs growth has averaged barely over100,000 a month, not even one-third the average in a typicalrecovery. After more than three years of recovery, the economyremains some 5 million jobs short of its previous peak.

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But if jobs growth is disappointing, not the least for themillions without work, it is far from the whole story on theconsumer. In this recovery, American industry has reliedinordinately on overtime and upgrading workers' skills, which hashelped the spending power of the more than 90% of the workforce whohave jobs, even as it has frustrated job seekers.

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In particular, overtime has expanded the average work week inthe private economy to almost 35 hours, from 33 during therecession. Because many earn time and a half for those extra hours,it is hardly surprising that average weekly earnings have risen bya whopping 36% above pre-recession levels. As a result, personalincome has grown a lot faster than the raw employment figures wouldsuggest. Wage income in the private economy, for instance, expandedat an annual rate of more than 4.5% so far this year, despite thepaucity of hiring.

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Consumer spending has other supports in addition to income.Households have also reduced many encumbrances on their income flowover the past few years. Debt service obligations have fallen toslightly over 16% of after-tax income, well down from almost 19%just before the recession and even from the 16.4% registered a yearago. Indeed, today such obligations stand at lows not seen since1993. The relief has effectively given household budgets an addedfillip above what they got from wage growth of about half a percentduring the past year and more than 2.3% since the recovery began in2009. This improvement helps explain why consumer spending hasexpanded despite subpar employment growth and can continue to do soeven if the jobs picture continues to disappoint.

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Offering further relief to household finances and so supportingconsumer spending has been a drop in debt charge-offs. According tothe Federal Reserve, some 1.24% of total loans and leases werecharged off in the first quarter, the most recent period for whichcomplete data are available. A year ago, charge-offs ran at 2.27%,after peaking at over 3% late in 2009. Improvement has occurred inmortgages, where charge-offs have fallen from a peak of 2.8% latein 2009 to 1.44% most recently. Credit cards have shown the mostprogress, with charge-offs dropping from a peak of 10.26% in late2009 to 4.25% most recently. Though none of this improvementnecessarily puts money in the consumer's pocket, by lifting a cloudof fear it has no doubt encouraged easier spending.

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

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None of this points to a boom in the consumer sector orelsewhere in the economy. Employment remains an importantconsideration and so far a source of weakness in the growthequation. Neither do these observations stand as proof againstadverse shocks. But the improvement in household finances and cashflows does nonetheless warn against the great temptation to seematters in an entirely negative light and against the forecasts ofimpending recession that inevitably emerge from suchsentiments.

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