American consumers are spending less and saving more. That’s the message in yesterday’s personal income and consumption report for December from the Bureau of Economic Analysis. That’s a healthy development for household balance sheets and, in the long run, it’s a plus for the economy. But if you’re looking for a fresh sign that the economy will avoid a recession, it’s not clear that these numbers will suffice.

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The personal spending and income report for December is scheduled for release later this morning. The consensus forecast is looking for a rebound after November’s tepid rise. The stakes are high, given the recent deterioration in the trend. I’ll be reviewing today’s numbers from afar, however, as I’m heading off to IMCA’s investment consultant conference in New York. I’ll have a belated reaction to today’s economic news when I return to the normal routine tomorrow.

The tight correlation in the last several years between the Treasury market’s inflation outlook and the stock market (S&P 500) has been a reliable barometer of macro conditions in a period that I like to call the new abnormal. As I discussed last October, in normal times, there’s minimal correlation between equity market prices and inflation expectations. Indeed, higher inflation is generally considered troublesome above a certain level… most of the time. But normality gave way in the wake of the financial crisis in late-2008, which brought us a new paradigm. And so, falling inflation expectations, until further notice, are accompanied by falling stock prices; if the trend persists, it leads to a deterioration in macro conditions. This illness will end one day, but not yet. (For the theory behind this empirical fact, see David Glasner’s research paper on the so-called Fisher effect.) Hold that thought as we consider the latest signals from the stock market in the context of inflation expectations and the implications for the economy.

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