MUNCIE, Ind. -- It is hard to imagine a better scenario for consumer spending than the state of the U.S. economy today, says a Ball State University economic analyst.

Employment security, judged by national job growth and the low unemployment rate, remains excellent. Interest rates, already at levels low enough to encourage borrowing, have fallen dramatically in recent weeks. And the stronger dollar has intensified the competition for imported goods, keeping price increases in check.

"The only bad news consumers have received all year has come from their stock brokers," said Patrick Barkey, director of the Bureau of Business Research. "On paper, the wealth position of many investors has taken quite a beating since July. But, to paraphrase a prominent economist, the stock market has predicted seven of the last three recessions."

Corrections in the stock market make us all feel bad, but by themselves they have only a small effect on consumer spending. A much more relevant influence on spending is the smaller, less publicized fluctuations in monthly income, Barkey said.

The most recent report by the Bureau of Economic Analysis (BEA) on personal income and outlays by consumers in August clearly signals that the environment for continued spending remains good, he said.

After correcting for inflation, after-tax income of U.S. consumers rose by a healthy 0.4 percent in August, the fastest growth in five months. BEA speculates that part of the growth may be a rebound from the UAW strike against General Motors, but the historical data suggest that the impact of event is quite small. In July, in the teeth of the strike that idled almost 140,000 workers, income still managed a 0.2 percent rise.

This report comes as no surprise to most analysts who've been following the national labor market. With almost 1.9 million net new jobs created in the economy so far this year, the spending power of consumers was almost certain to rise substantially, Barkey said.

In fact, with employment growth rebounding handsomely in August, when payrolls expanded by 365,000 jobs, an acceleration in income in this most recent report was expected, he said.

"The uncertainty comes in predicting what consumers will do with their money," Barkey said. "Even if the data suggest that conditions for spending are good, history has often demonstrated that, like the proverbial horse led to water, consumers can be quite finicky about opening their wallets."

The stock market, the political situation in the White House, and the omnipresent news about failing economies abroad have changed the tone of mass media reports on the economy in recent months," he said. "With the world economy more commonly being described as one in crisis, would consumers here put the brakes on spending?"  

That question remains to be answered, but the August BEA report on outlays shows a mild rebound in spending in this most recent complete month. Inflation corrected spending was up by 0.5 percent in August, and has averaged a respectable 0.4 percent per month increase over the last four months. The latter figure would be higher, if not for the 0.3 percent decline in spending recorded in July, part of which can be blamed on the UAW strike, Barkey said.

Domestic businesses, of course, are a bit less ecstatic about the world economic situation, and the stock declines of recent months reflect, in part, this more sanguine outlook.

"The sustainability of the job growth that is ultimately propelling consumer spending will hang on how well they can keep themselves afloat, particularly those that depend on the turbulent international markets for their revenue," Barkey said. "But for the next few months, at least, consumers appear to have more than enough muscle to carry the load of economic growth."

(NOTE TO EDITORS: For more information, contact Barkey by E-mail at pbarkey@bsu.edu or by phone at (765) 285-5926.)