NEW YORK ( TheStreet) -- The consumer is back and spending more freely than most pundits (myself included) anticipated.

The Great Recession of 2008 was centered on overleveraged households and a retrenching of consumer spending. In the second half of 2008, consumer spending was declining at an annualized rate of more than 3% and the overall contraction in spending was the most severe since the 1930s.

However, a strange thing began to happen during the second half of last year. Since the summer, consumer spending has been growing 3% in real dollar terms. Holiday sales were up modestly. February retail sales were surprisingly strong, with non-auto spending up a brisk 0.8%. Most of those results exceeded expectations, despite weak employment and income growth. This level of activity bolsters the prospects for retailers and some manufacturers.

Given the severity of the downturn and the need for consumers to deleverage, we have to question whether such a stronger-than-expected comeback is sustainable. If it is, there are other dynamics that need consideration, including inadequate personal savings and investments for many households. In a recent survey conducted for Nationwide by the Blackstone Group ( BX), a quarter of Americans say they don't spend any time on saving and investment-related activities.

Some of the bounce reflects the reality that consumers couldn't have stayed away from stores forever. Sooner or later, things need to be replaced, and demand picks up, as can be seen in clothing and other necessities. But the appetite to purchase bigger-ticket items, like cars, refrigerators or washing machines is more subdued.

So is this consumer comeback sustainable?

Yes, it is. As the labor market gradually improves, the pace in the second half may prove to be even stronger. Some retailers should benefit, especially if they can manage inventories and margins. Even hard-hit sectors like automotive are likely to post modest sales growth, given the initial stages of the recovery. (We're forecasting 12 million units sold this year, which, while nothing to write home about, is a vast improvement over the past few years.) Income growth, gradual improvement in employment conditions and accommodating interest rates remain pluses. Given those factors, our confidence level for 2010 and early 2011 remains high. Even the Federal Reserve is sounding more confident in the recovery.

We should all remain concerned about what happens to consumer behavior beyond 2010, as the recovery moves into an expansion mode. While retail sales received substantial coverage recently, the Fed's latest Flow of Funds report causes some concern about the future without further spending restraint from households. Net worth is still below peak levels, and the deleveraging process has only started.

And given the challenges that households face, it's not surprising that equity markets have only inched up so far this year. Some restraint is justified, despite consumers starting the year spending at a pace above expectations.

So let's breathe a sigh of relief for 2010, but there remains many questions in the years after that.
Paul Ballew is senior vice president of customer insights and analytics at Nationwide Mutual Insurance in Columbus, Ohio. Ballew previously served as a Fed economist, a partner for J.D. Power and a senior executive at General Motors.

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