Long Term Perspective
Typically, consumers increase spending in direct proportion to gains in disposable income. Since 1998, spending has outpaced income, as consumers felt wealthier from stock market gains and housing appreciation. The gap didn't narrow very much in 2000 even though the stock market headed south and consumer wealth stopping increasing exponentially! Consumption has continued to grow faster than income in the past several years.

Short Term Perspective
Consumer spending expanded at a 2.9 percent rate in the third quarter - somewhat higher than 2.6 percent in the second quarter but still a notable slowing from 4.8 percent in the first quarter. Most of the deceleration from the first quarter is in the durables component. However, durables and services were quite healthy in the third quarter with nondurables posting modest gains. Disposable personal income rebounded at a 3.7 percent annualized rate in the third quarter from the second quarter's 1.5 percent decline. The second quarter decline was due to weak nominal wages growth (very soft growth in services wages and salaries and a decline in manufacturing wages and salaries) combined with a spike in consumer prices. Third quarter income growth reflected a surge in wages and salaries and weak inflation.