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Consumers continue to shrug off mortgage problems, a slowing housing market and increasing gasoline prices, as they keep snapping up products, increasing spending by the largest amount in about 3 1/2 years in November, said the Commerce Department.

Overall consumer spending grew by 1.1 percent last month, almost three times the increase of October. The last time it grew that much was in May 2004.

"Consumers did their part in November, but we will see whether they are up to it for the full Christmas season and into next year," said Mark Zandi, chief economist at Moody's Economy.com. "Their financial fire power is fading due to the weaker job market, surging gasoline and food prices which cut into their purchasing power and the evaporating housing market."

Consumer spending accounts for two-thirds of economic growth in the United States, and so is one of the most watched indicators on where the economy may be going. They continue to surprise many experts on their ongoing confidence in the overall market.

One reason may be that wages continue to increase, as they grew by 0.4 percent in November, definitely affecting the psychology of consumers.

As a result of stronger-than-expected spending, analysts say they're reconfiguring their forecasts for this quarters' growth. It also may be putting off the threat of an imminent recession.

It does reaffirm the decision by many retailers to discount earlier in the Christmas season to encourage and keep people spending. Now it remains to be seen if their decision to hold off on more discounting the last part of December will pay off in earnings for the quarter.

The problem the economy has as it relates to consumers, is how long they can continue spending. The will is there, but the reality is they're now spending themselves into negative terrritory, as the savings rate has fallen into the minus column; the first time that's happened in 15 months. 
 
What that means is they're using existing savings or going into more debt to finance their spending. That could quickly turn into a problem if inflation continues to climb.

As far as inflation goes, that's the thing making it a difficult economy to attempt to manage, as the usual remedy of cutting interest rates to jumpstart the economy could also increase inflation and do just as much harm. These two are in tension now, and going too much either way could easily make things worse.

Over the last year, core inflation is up 2.2 percent, over the comfort level of between 1 percent to 2 percent of the Federal Reserve.

After saying all this, we're really no more sure on what will happen than we were before. What increased consumer spending does at least, is make it take a little longer to possibly go into a recession. At most, it could continue on as before, neglecting the economic problems related credit, housing and energy prices.

While that's all we hear in the economic news these days, other parts of the economy have been very resilient and doing well. All we can do is prepare for the worst and keep on working at our core business.