In the U.S., consumer sentiment is high; household balance sheets are strong; employment is still solid, and spending has been growing. The latest evidence of the consumer's durability will be Thursday's July retail sales report, expected to be up by 0.3%, according to Refinitiv.

By many measures, the consumer is doing well, unscathed by the trade wars that have hit global manufacturing and business investment.

With markets reeling from recession fears, the world is watching the resilient U.S. consumer, now in the strongest position since before the financial crisis — so far.

"The consumer has played Atlas, carrying the economy, and it can do that, but the muscles come from job gains and wages," said Diane Swonk, chief economist at Grant Thornton. "You can say the consumer is going to carry you through. They will if they keep their jobs and they don't get scared."

The economy added 164,000 nonfarm payrolls in July, nearly as expected, and also about the average monthly gain for the year. In 2018, the economy created 223,000 jobs a month, but economists see the slower pace as still solid. The unemployment rate is at 3.7% and wages gained 3.2% year over year.

But recession clouds are hanging over the economy longer term, as some investors fear the impact of trade wars and the global slowdown will spill over to the U.S., and the Fed will not respond aggressively enough.

Weak and volatile market conditions can cause a pullback in consumer spending, as it did in December when the stock market was spiraling lower.

"We think the consumer is really the key to keeping this recovery going. It's kind of the only sector, along with government spending, that's really had sustained gains in recent months," said Jonathan Millar, deputy chief U.S. economist at Barclays. Consumers make up roughly 70% of the U.S. economy. "That doesn't mean we're on the cusp of a recession because consumer spending is something like 70% of the economy. Consumer spending can keep the recovery going for some time. The durability of the gains in payrolls and the willingness of households to spend is going to be a key issue when thinking about how long this recovery is going to go on."



Stocks were falling sharply Wednesday, with the Dow down more than 700 points, as investors worried about a new recession warning coming from the bond market. There has been a significant drop in Treasury yields, since last month's Fed meeting. The yield on the bench mark 10-year Treasury, which moves opposite price, was at a low 1.57% Wednesday, a half percentage point lower than just two weeks ago.

The unusually volatile move in Treasurys has resulted in an inverted yield curve, meaning the shorter duration 2-year yield is higher than the 10-year yield. That is a widely watched recession signal, with the 10-year, reflecting a flight to safety and concern about the economy longer term, and the 2-year slightly higher, more an indication of where the Fed is currently targeting short-term interest rates.

However, there is a silver lining in the sharp drop in interest rates: Even if they have succeeded in spooking investors, they could be a big plus for consumers. The benchmark 10-year Treasury yield influences mortgages and other consumer and business loans, and borrowers are looking at lower rates.

"The early litmus test as to whether that's good or bad are the mortgage applications," said Ward McCarthy, chief financial economist at Jefferies. "The refinancings support the balance sheets of households. It's like a tax break. And the purchase apps rising provides support for housing."