A look past the upbeat headlines from this week's third-quarter gross domestic product report points to a more tentative diagnosis of the U.S. economy than the stock market's initial response warranted.
To be sure, GDP did grow 2.5 percent in the July-to-September quarter. That's up from 1.3 percent growth in the second quarter and 0.4 percent growth in the first quarter.
Business spending on tech products, construction and equipment surged 17.7 percent.
Best of all, on an inflation-adjusted basis, GDP rose to $13.35 trillion, Bloomberg reported, topping the $13.33 trillion in the fourth quarter of 2007.
The news was welcomed by economists and analysts, as well as investors.
A fairly good report, based on the details, which should provide a degree of support to stocks, weighing somewhat on fixed income, said CIBC analyst Peter Buchanan.
But let's check under the hood, at three aspects of the report, spending, income and the future.
Consumer spending last quarter rose a strong 2.4 percent. But that increased spending came at the expense of savings, which fell during the quarter to 4.1 percent from 5.1 percent, said Dave Rosenberg, chief economist with Gluskin + Sheff Associations Inc.
Absent that impact, consumer spending would have come in with a tepid 1.3 percent growth rate, said Rosenberg.
Consider as well what consumers spent more on last quarter: healthcare and utilities, essential items - note discretionary ones. In other wrods, they went to the doctor and replaced refrigerators; they didn't go to Bali or buy new furniture.
Personal income growth slowed from 4.6 percent to a seasonally adjusted annual rate of 0.9 percent. Some analysts point to the third quarter's higher inflation as a factor.
The weakness in real disposable income partly reflected the strength of consumer price inflation, up 2.4 percent quarter-over-quarter annualized, said Barclays Capital analyst Peter Newland.
Others found the income-spending gap more troublesome.
We are concerned that real income generation has not been strong enough to support the current consumption pace and financial conditions are less accommodative for growth, said Citi analyst Steven C. Wieting.
Rosenberg said the third quarter's income decline was the first since the fourth quarter of 2009.
Economists are divided over whether or not a close examination of the third-quarter report bodes well or woe for the economy.
So the hallmark of the third quarter GDP report is that a massive and unsustainable gap has opened up between incomes and spending, which is why I am feeling uneasy about it, Rosenberg said.
If we don't soon start to see personal income growth revive, then consumer budgets are going to be staring a contracting in the face, because there is a limit to how far the savings rate can decline in the face of still-weak home prices.
Barclay's Newland, on the other hand, finds at least three reasons for encouragement.
First, the rebound in consumption wasn't an auto story (indeed, real auto consumption declined modestly) but rather reflected strength in the more heavily weighted and less volatile services component. A boost from autos and stronger real incomes should support a further solid (if unspectacular) increase in real consumer spending in the fourth quarter.
Second, strong profit and cash levels in the corporate sector should underpin further gains in equipment and software investment.
Third, we would take the decline in inventory accumulation as a sign that firms responded quickly to the softness in domestic demand in the first half of the year and is unlikely to be repeated in fourth quarter.