Consumer spending accounts for 65%-70% of GDP so if the US economy is to experience a sustainable economic expansion it will be on the backs of the American consumer.

Are consumers spending? How can we?! We’re deluged on a daily basis with stories of layoffs, foreclosures and bankruptcy. Those of us with jobs face frozen salaries, no bonuses and suspended 401(k) matches.

There’s good news to be had for as Dylan might say: “The times they are a changin’.”

INCOMES ARE UP. Real (meaning adjusted for inflation) disposable income – a wonderfully reliable predictor of consumer spending – was up 0.2% in October following a 0.1% climb in September. On a year-over-year basis they’re up more than 2% for the past quarter.

EMPLOYEE BENEFITS ARE MAKING A COMEBACK. Benefits consulting firm Watson Wyatt reported firms planning to reinstate their 401(k) matches rose from 5% in June to 25% in August to 35% in October. Firms planning to increase or “unfreeze” salaries rose from 17% to 54%.

REAL ESTATE NEWS CONTINUES TO SURPRISE. Existing home sales jumped 10% with new home sales jumping 6.2%. With uncertainty over extension of the housing credit (which we now know was extended) there’s pent up demand to be worked off. New-home inventories are down to 293,000 units representing the lowest level in 40 years. Decreased starts and depleted inventory suggest a high probability of construction activity in 2010. The Case-Shiller Housing Price Index and similar data from the Federal Housing Finance Agency show year-over-year price declines of 3.8% – well off the worst levels. In sum short-term pricing will continue to be a balancing act between foreclosures and stimulus-induced demand while long-term trends suggest inventory rebuilding via new construction.

CONSUMERS SHOWED A WILLINGNESS TO SPEND. October’s real consumption expenditures were up 0.4%. It should be noted this outpaced income growth suggesting confidence in non-income wealth such as stable/rising home equity, decreased debt burdens and recovering investment portfolios. At the high end of retail the Tiffany’s and Saks’ of the world reported better than expected results. Mid-level retailers and discounters reported sequential sales increases.

With rising income, decreasing debt burdens and brighter employment prospects the conditions are in place for better than expected consumer spending and resulting GDP growth. The question remains will the consumer have the confidence to keep spending?