The Consumer Spending Mirage

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In fact, once medical outlays and those two imputed categories are set aside, it turns out that the rest of personal spending has actually fallen since November, adjusted for inflation. The decline is pretty much across the board: inflation-adjusted purchases of food, clothing, furniture, and motor vehicles are all down. The part of health-care spending that individuals control most directly—prescription drugs—is down as well.

Consumer cliffhanger

Spending on vices is also dropping. According to the government's figures, alcohol consumption and casino gambling have been declining since November. Indeed, Nevada gambling revenues are down by 4% over the past year.

There are signs that affluent individuals are pulling back, too. Purchases of jewelry and watches are off 3.9% since November, adjusted for inflation. A survey of high-net-worth Americans found that 42% are likely or very likely to change how they budget and spend their money. "These folks are tightening the belt a little bit," says George H. Walper Jr., president of Spectrem Group, the consulting firm that commissioned the survey. "Just because someone is wealthy doesn't mean that they don't get cautious."

Some categories of spending are still rising. Real outlays for the category "religious and welfare activities," which includes political donations, are up because of the Presidential campaigns. And at least up to this point, Americans still are buying more televisions and talking longer on their phones.

Some economists think the combination of economic stimulus checks soon to arrive from the federal government and lower interest rates should keep consumer spending from falling off a cliff. "We think consumers will narrowly skirt a downturn despite the recession in the overall economy," write Richard Berner and David Greenlaw of Morgan Stanley (MS) in a just-released report.

Certainly, that's what the market seems to be expecting, given the performance of the top consumer stocks. But if the decline in consumer spending continues, it's going to be hard for the market not to follow.

Mandel is chief economist for BusinessWeek .