Consumers are spending a lot more and saving a lot less

How US tariffs might hurt US consumers
How US tariffs might hurt US consumers

So much for all that retail doom and gloom.

Consumer spending rose more than expected in April, a sign of optimism about the US economy. But people are also saving less -- and that's a potentially worrisome sign if the economy takes a sudden turn south.

The US Commerce Department reported Thursday morning that personal expenditures rose 0.6% in April. Economists had forecast just a 0.3% increase.

The pace of spending was also higher than what people earned last month. Personal income rose just 0.3%.

As a result, the savings rate fell to 2.8%. The savings rate is the ratio between savings and disposable income.

That's only the third time since the 2008 financial crisis that the savings rate has dipped below 3%. It was also lower than 3% last November and December but it rebounded after the holiday shopping season.

The savings rate was routinely below 3% before the Great Recession as consumer confidence was soaring thanks to surging stocks and skyrocketing home prices.

But once the bottom fell out of both the housing and stock markets, consumers adopted more of a bunker mentality mode. The savings rate, which stood at just 3% in December 2007, shot all the way up to 8.1% by May 2009.

The savings rate peaked at 11% in December 2012.

Consumers are clearly feeling more flush now, partly due to the recent tax cuts passed by the Republican-controlled Congress and signed by President Trump.

Michael Gapen, chief US economist for Barclays, said in a report Thursday that consumers will start spending even more and saving less once they get used to lower withholding rates and potentially bigger paychecks that result from the tax cuts.

Related: Why some retailers are winning big while others are losing

Gapen predicts that spending will "remain solid in the coming months" and that the savings rate could fall as low as 2%. It hasn't been that low since hitting 1.9% in July 2005.

It also appears that Americans are undeterred by the multiple trade actions the United States is taking against foreign nations. Tariffs on goods made in China as well as steel and aluminum tariffs on Canada, Mexico and the EU may lead to higher prices for imports.

There's also the issue of whether consumers are going heavily into debt to pay for all their spending.

A report from the New York Federal Reserve two weeks ago showed that total consumer debt rose for the 15th consecutive quarter to a new record of $13.2 trillion in the first quarter.

Overall debt levels are now $536 billion higher than the previous peak of $12.7 trillion from the third quarter of 2008.

The lion's share of that debt is tied up in mortgages. Relatively low interest rates have encouraged more people to buy homes. Mortgage debt rose $312 billion to $8.9 trillion.

But the levels of student loan, auto loan and credit card debt also shot up in the first quarter.

Are consumers getting in over their heads once again -- spending way too much and not saving enough -- just as they did just before the Great Recession? Only time will tell. But it's a concern.

Personal Finance

CNNMoney Sponsors