Although this development would be welcome, the unemployment rate may well continue to rise for a time, and job losses can be expected to put something of a damper on consumer spending. However, the extent of that restraint will depend on how much of any rise in unemployment is the result of weakened demand and how much reflects strengthened productivity.
In the latter case, average real incomes could rise, at least partially offsetting losses of purchasing power that stem from diminished levels of employment. Finally, economic policies will have an important influence on household spending in the period ahead. No doubt, we will continue to benefit from the tendency of our tax and entitlement systems to buffer cyclical swings in income.