"As a nation we buy even when economic conditions are stressed and our pocketbooks are squeezed. The remarkable resilience of the U.S. consumer during the 2001 recession provides a good example. Homeowners refinanced and tapped the equity in their homes to keep spending rising, even as employment and incomes declined. Persistently strong consumer spending among other factors should offset any additional drag coming from the housing and auto sectors. Prospects for real GDP growth is 2.1%," says Diane Swonk, chief economist of Mesirow Financial.

"Individuals will do everything in their power [including leveraging their financial futures] to resist reductions in their standards of living," notes Swonk.

Swonk examines the consumer balance sheet and negates the perceived risks to consumer spending.

- Real income growth reaccelerated in late 2006, aided by solid employment gains, record Wall Street bonuses and a drop in oil prices.
- Consumer confidence is improving - mostly because of a tight labor market - with the average of January and February hitting some of the highest levels of the expansion.
- The S&P 500 is expected to rise in the 5% to 8% range from the start of the year, which pales when compared to the last nine months, but still bodes well for consumer spending in 2007.
- Loss rates in the larger mortgage market (compared to sub-prime mortgage market) remain relatively low, running almost half the pace of the 1990s recession.
- Debt service burdens have been rising consistently over the years, and have yet to constrain consumer spending. No one knows what the "equilibrium" level of debt should be given financial innovations, which have enabled consumers to carry more debt in recent years.
- The negative saving rate reflects a statistical glitch, which will rreverse itself now that mortgage refinancing has slowed. It will be further corrected as consumers move to replenish their saving now that their wealth is growing at a slower pace.

"Why then should the U.S. consumer give up today? A pick up in real income growth along - the single largest determinant of consumer spending - should calm the fears of doomsayers, who are worried that the housing market will take consumers down. Add to that, a general improvement in consumer attitudes, and it's tough to believe that consumers will suddenly pull in on their spending," concludes Swonk.