Stock investors better hope consumers don't start getting more careful with their money.

Despite a sharp slowdown in the economy and deep trouble in the U.S. manufacturing base, Americans have kept on spending, much to the surprise of economists and analysts everywhere. In so doing, the consumer looks to have kept the country out of recession.

The problem is that it looks as if we have been spending what we haven't got. Monday the

Commerce Department

said that

consumer spending grew by 0.5% in May -- better than the 0.4% gain economists had predicted. At the same time, however, the savings rate fell to minus 1.3%, its eighth-consecutive negative reading. That paints a picture of consumers not just living hand-to-mouth, but dipping into savings to help keep up with their spending habits.

In truth it may not be so bad as that. Over the past decade, Americans have shifted much of what had formerly gone into savings accounts toward equities. Because stock investments don't qualify as savings, this pulled down the savings rate. And because equity investments -- even with the recent rout in stocks -- have posted tremendous capital gains through the course of the past 10 years, maybe it's pretty rational that consumers would determine they needed to sock away less.

Reason to Be Concerned

But while things may not be as bad on the savings front as the data are making it appear, there's reason to be concerned about stocks' prospects. Many Americans have lately discovered exactly why stocks aren't considered savings. Since the market's peak in March 2000, an enormous amount of wealth has been destroyed; meantime, the baby-boom generation keeps getting closer to retirement.

TheStreet Recommends

"The imperatives of personal saving are more urgent today than in the past," wrote

Morgan Stanley Dean Witter

chief economist Stephen Roach in a recent note. "This suggests that in a post-bubble climate, there is likely to be an important shift in the mix of personal saving, with more of it coming from income generation than from financial market wealth creation."

With age comes conservatism, but there is another reason to suspect that Americans may divert less of their income toward the equity market: Even after the U.S. pulls out of its downturn, the corporate profit picture may not be as rosy as it was during the past several years. After an era of profligacy, it seems unlikely that investment in capital equipment, particularly tech goods, will grow as it has in the past. Nor is it likely that the U.S. economy will grow at an over-4% pace, as it did from 1997 to 2000.

J.P. Morgan

strategists have shown that there is a strong correlation, over the long run, between corporate profitability and the portion of household assets that get dedicated to stocks. Based on the

Fed's flow-of-funds data, they reckon that 51.6% of household financial assets were dedicated to stocks at the end of the first quarter. That's not as much as at the end of 1999, when the number ticked up to 61.7%, but historically it's still quite high.

"Since households have this high exposure to stocks and the equity market is not returning spectacular, or even decent, returns," says J.P. Morgan equity strategist Tom Van Leuven, "a lot of people may begin looking for alternative investments and not putting as much money in stocks." There have, after all, been long stretches where investors' imagination were captured by things other than the stock market. Perhaps we're about to enter one of those periods.