We don’t know for sure what levels of debt burden [households] feel comfortable with. Although the Federal Reserve’s figures on financial obligations relative to income for households have come down some in recent quarters, they are still high. Nonetheless, the expectation is that consumer spending will continue to grow at a moderate pace.

The greater the extent to which capital inflows act to augment residential construction and especially current consumption spending, the greater the future economic burden of repaying the foreign debt is likely to be.

Consumer spending has been remarkably resilient in the face of higher oil prices, but the evidence does suggest that there was some negative impact on spending over the past year and oil prices have again ratcheted up over $50 per barrel.

One reason that consumers are saving so little out of disposable income is that their wealth has been on the rise...recently, the main impetus has been house price appreciation. With interest rates rising now and housing prices unlikely to continuing [sic] advancing at their recent robust pace, consumers will need to curtail their spending to keep wealth growing in line with income. In other words, the saving rate might rise to more normal levels. If this happens, the falloff in spending growth by consumers could have a significant effect on overall economic activity.

As consumer debt has increased, so have consumer asset holdings...What that says to me is that the average consumer household is in good financial shape.

Augmented by continued strong labor productivity growth, improvements in the labor market, and a recovery in household purchasing power reflecting lower energy prices, growth of consumer spending should also remain healthy.

Although pockets of financial stress exist among households, the sector as a whole appears to be in good shape.

Debt-service ratio has been stable and the financial obligations ratio has receded a bit, an indication that households, in the aggregate, have been keeping an eye on their financial commitments. Consistent with these patterns, delinquency rates for a wide range of household loans either have drifted down over the past year or held about steady at levels below recent highs.

Analysis by Board staff using data from the SCF indicate that households in the top income quintile can account for nearly all of the decline in the aggregate saving rate since 1989. Given that these higher-income households have more financial resources to weather shocks, the significant decline in savings is less troublesome than if it had occurred in the lower part of the income distribution.

The pace of private sector hiring has been relatively modest, and growth in household disposable income—a major factor determining consumption—relatively muted. This raises a question about whether the consumption spending that is needed to support GDP growth at its current pace is achievable without a pick up in hiring and/or wages.

The current high rate of increase in house prices cannot continue indefinitely. If housing prices increase at somewhat slower rates, this source of wealth creation will provide less support to consumer spending.

Consumer spending, fueled by expectations of sustained income growth, should continue to expand at something near the strong pace we have been seeing.

Inflation also seems to have been boosted by transitory factors such as the surge in energy prices. Those higher prices, by eroding households' disposable income, have accounted for at least some of the observed softness in consumer spending of late, a softness which should prove short-lived.

Some moderation in the pace of spending was necessary and expected if the economy was to progress along a more balanced growth path..The adjustment occurred much faster than most businesses anticipated, with the slowdown likely intensified by the rise in the cost of energy that until quite recently had drained businesses and households of purchasing power.

It is certainly premature to make a definitive assessment of either the recent trends in household spending or what they mean. But it is clear that, for the time being at least, the increase in spending on consumer goods and houses has come down several notches, albeit from very high levels.