The stock market's in the dumps and consumer confidence has plummeted. Maybe, but you'd never guess anything was wrong from the way Americans have been spending lately.

It's true that the

Nasdaq Composite Index

and

S&P 500

have fallen from their highs in the past 12 months and that consumer confidence fell for the fifth straight month in February. But data from the

Department of Commerce

shows the personal savings rate was still in negative territory as recently as December. The latest figures available put the savings rate at -0.8%. That's not as scary as it sounds, because the savings rate doesn't take into account other forms of wealth and past savings, as we shall see. But the continued pace of spending is significant, because it has persisted in the midst of a sharp economic downturn.

Much of the spectacular economic growth over the past few years has been fueled by consumer spending, which accounts for two-thirds of all U.S. economic activity. In theory, if people were to suddenly get worried about job security and start socking away more of their money, the resulting drop in consumption might have the effect of worsening economic woes.

The savings rate for all of 2000 was -0.1%. The last time the annual number was negative was in 1933, in the midst of the Depression. (Conversely, annual savings reached its highest rate, 20.6%, in 1945, when the war and rationing served to slow down consumption.)

In 2000, personal savings was negative not because the economy was so

bad

, but because it was so

good

. Fueled by tremendous optimism, Americans continued to spend more than we took in, even through the end of the year, after ominous announcements of corporate layoffs began seeping out and Wall Street strategists started tossing around the R-word in public.

In fact, it turns out consumers were whooping it up -- spending more than they earned -- throughout the entire fourth quarter, certainly one of the nastiest on record. Granted, it's possible that people have already throttled back somewhat on spending since December. Figures on the January savings rate won't be released until March 1. But retail sales numbers seem to suggest there hasn't been much of a slowdown yet --

sales were up 0.7% in January, compared with December's anemic 0.1% increase.

But economists don't expect to see a sudden pullback in spending. "I would expect almost no impact on savings in such a short-run effect," says James Smith, a senior economist for

Rand Corp

. Smith said since consumers can't answer the question: Is the recent weakness an indicator that we're going to be in a recession for most of the next 18 months, or just a temporary blip, which we'll be practically ignoring six months from now? -- they won't be bothered to change their behavior much.

In fact, people who study personal finance say consumer spending habits, in the aggregate, take a long time to change. Savings rates have been slowly declining for the past two decades, and they're not likely to execute a 180-degree turn.

Dwindling Savings
The rate of personal savings has steadily dropped over the last decade

Source: Department of Commerce, Bureau of Economic Analysis.

The personal savings rate has ebbed down ever since 1982, when it reached 10.9%. But the savings rate isn't likely to react much to current economic worries, says David Weil, an economics professor at

Brown University

, because savings behavior tends to be affected by an average of past experience. Despite a sharp market downturn last year, he says, "Most people who have money in stocks are still way, way ahead. Maybe consumption is just catching up to wealth."

That observation points to a frequent criticism of the savings rate -- that it measures savings but not wealth. The savings rate measures after-tax personal income minus consumer spending. It treats pre- and post-tax investments in the stock market -- everything from 401(k)s to taxable investments -- as a form of savings, not spending. So people get credit, savingswise, for investments in the market. But critics point out the government ignores capital gains on those investments. So while people may be saving less than they used to, in many cases it's because they've already seen huge gains on their investments. They may be acting more rationally than a decline in the savings rate would suggest.

The savings rate also doesn't reflect the wealth contained in people's homes, which often represents the biggest asset for many households. In short, while the savings rate may seem alarmingly low, it doesn't take into account assets that make up a hefty part of many people's wealth.

While most economists don't expect the savings rate to move up sharply anytime soon, what would it take for the rate to revert to historical norms? By several accounts, that will happen when the stock market flattens out long enough -- a year at least, maybe more -- for people to stop depending on capital gains. The shrinking of easy credit and pessimism about the job market are also likely to encourage more savings.

Another factor likely to push up the rate over time: Younger people who missed out on the big run-up in stocks will have no choice but to pump up their retirement contributions. Unlike their elders, they won't have enjoyed the benefit of 25%-plus year-on-year gains and will have to save much more to make up for it. On a related note, changes in the Social Security program could also encourage more saving. Relative to the past, "There's a much bigger segment of the population that's retired," says Jonathan Parker, who teaches economics at

Princeton University

. "Not only are they running down wealth, they're receiving large transfer payments from people that are working."

In the future, retirees may not get such a generous return relative to what they paid into the system, Parker says. "If Social Security starts to dwindle, personal savings may turn around significantly, because people won't be able to rely on the government paying them money from taxing the people who are currently working."

But none of those changes are likely to happen quickly. So for the near term, don't be surprised if consumers keep on spending. As long as people can tap into wealth other than their disposable income, they may not be as spend-thrifty as they look.