Although the 2.2 percent bump in consumer spending last year was modest, it still suggests that the US economy is on the mend. US payrolls are once again growing at a respectable rate, as American employers hired an average of 150,000 new workers per month since October 2010. While most of the initial job gains were in defensive sectors such as health care, the Labor Department’s latest employment diffusion index reading was 62.4, which shows that more sectors are creating jobs than laying off workers. Payrolls are at a new one-year high for the manufacturing sector, while even economically sensitive sectors such as retail and construction are adding jobs. Indeed, this spate of hiring has pushed the nation’s unemployment rate down to 8.3 percent. The strengthening labor market boosted personal incomes, which rose 4.7 percent in 2011 versus a 3.7 percent increase in 2010. Additionally, disposable personal income, a key driver of spending growth, rose 3.4 percent last year. As households continue to deleverage, much of that bump in disposable income is being put toward savings, but those savings will eventually foster future consumption.

Inventory growth has been another positive indicator in recent months, with rising stocks of both manufactured goods and materials. Businesses are starting to position themselves for a sustained recovery, so they’re stockpiling everything from automobiles and televisions to meet future demand. As a sign of corporate confidence, inventory growth is a positive precursor to employment growth.

These gains in wages and hiring have translated into higher consumer confidence. The latest reading from the University of Michigan Index of Consumer Sentiment jumped from 69.9 in December to 75 in January. While the index is still well below its five- year prerecession average of 89, it has steadily improved since the economy bottomed in 2009.

Consumer spending may soften in the first quarter, as consumers pay down holiday debts and await greater clarity with regard to the outcome of the US elections and the European sovereign-debt crisis.