The evidence is building that U.S. consumers are feeling the pinch once again. They may not want to admit it — with measures of consumer sentiment remaining buoyant — but the underlying data suggests otherwise. None of this is surprising, given the headwinds we face from a combination of stalled job growth, stagnant wages, higher costs for fuel and other necessities, higher taxes, and now, the prospect of furloughs for federal employees as the sequester kicks in.

Households just absorbed their largest hit to income in 20 years as all those end-of-the-year bonuses and dividend payments, designed to get around 2013′s higher tax rates, came to an end. The question is: Will the drop continue?

First, it’s worth mentioning that American consumers have yet to fully reverse the fallout from the last boom-bust cycle. Household debt loads remain high, by historical standards, a shown in the chart above of the ratio of household debt to inflation-adjusted disposable personal income.

This is because while overall debt levels have been falling slightly (mainly due to mortgage defaults and foreclosures) real disposable incomes  have stagnated, as shown below, and will likely get worse as taxes rise and job growth stalls in the midst of a weakening global economy.

Add in the fact gas prices recently set a record high for February, rental housing rates are moving steadily higher, and the relentless rise in health care costs, and consumers are being pinched from all sides.

For now, households are trying to maintain their current spending levels by tapping into savings (pulling down the savings rate to just 2.4%) and are turning to credit again. In fact, household debt increased $31 billion last quarter to $11.3 trillion — which is only the second quarterly increase since the 2008 financial crisis as credit card balances turned higher.

Unless the job market improves and wages start growing again this is unsustainable. Consumers will soon have no choice but to cut spending and hurt retail sales, which was the one area that kept the economy out of the ditch in the fourth quarter.

I’m not at all confident. And while stocks seem to be in their own reality these days, commodities, currencies, and fixed-income markets are all suggesting trouble lies ahead.

Today’s drop in crude oil is especially notable, with the U.S. Oil Fund (USO) gapping lower. I’ve recommended my clients take advantage via the ProShares UltraShort Oil & Gas (DUG) as well as the ProShares UltraShort Crude Oil (SCO).

Inflation concerns actually went down 0.2%, despite persistently high food and gas prices, and a 0.6% rise in consumer prices in September. Confidence in future income prospects went up, despite a 0.3% drop in real disposable income in August. Even with less pocket change, consumers still upped retail spending the next month, spending an extra 1.1% on consumer goods. Combined with higher confidence, Capital Economics noted that, “taken on face value, this suggests that annualized consumption growth could reach 4% in the fourth quarter.”

None of which even mentions the misplaced encouragement from the unemployment drop. September’s headline employment gain was inflated by an unbelievable 873,000-employment gain in the household survey. In fact, private payrolls have been hovering around the 121k per month level, a rate consistent with a stagnant unemployment rate, not a dramatic drop. But all consumers saw was the drop.

CEOs haven’t been nearly optimistic. The day before October’s bombshell jobs report was released, the Conference Board a less noticed measure of executive confidence in the economy for the third quarter. It wasn’t pretty. The headline confidence index fell five points to 42. The percentage of CEOs seeing improvement right now dropped from 17% to 9%. Consumers’ take on current conditions rose 2.9%. And while six-month expectations rose 6.0 points for consumers to a recovery high, the percentage of CEOs who thought the same fell from 20% to 12%. Almost a third noted they’ve already scaled back investments since January 2012.

The bad news out of earnings season only reinforces CEO pessimism. Dow Chemicals will have to cut 2,400 jobs due to slowing global demand. Sales slid 10% in the third quarter. Cummins expects to lay off between 1,000 and 1,500, and lowered its revenue outlook for the remainder of 2012. DuPont is letting go of about 2% of its workforce – about 1,500 employees – to offset soft demand.

Concerns about the fiscal cliff aren’t weighing down consumers, but they are worrying CEOs. Businesses are delaying business investments until some kind of resolution is agreed to. Not to mention mediocre manufacturing figures and poor durable goods orders, the latter back down to a recessionary lows — which was a drag on Q3 GDP growth.

After reviewing the manufacturing, durable goods, labor and CEO confidence reports, I wouldn’t be surprised to see a sizeable drop in new hiring in the coming months — with negative ramifications for both the economy and the stock market.

That’s the largest one-month gain in 29 years (excluding annual Census population adjustments). And it’s the largest statistical outlier in the data since 2003. Political operatives on the right are crying foul. And after an initial ramp in the first few hours of trading, Wall Street started doubting the numbers and selling into the rise given all the other evidence (factory orders, durable goods order, low CEO confidence and weak GDP growth) that the economy has hit another soft spot.

There are some irregularities. Superficially, there are things like the way the number of people that gained part-time employment for economic reasons (+582,000) was precisely two-thirds of the +873,000 household survey increase. That’s 66.666666% out to as many decimal places as you’d care to calculate.

That seems a little too perfect.

The broader U6 measure of unemployment was also unchanged, at 14.7%, because of the rise of part-time workers that would rather have a full-time job. The gap between the U6 and the standard U4 measure remains large.

The report also relied heavily on gains in the educational sector, which compensated for weaker-than-expected private sector gains, as well as part-time positions. And the household survey, the source of the drop in the unemployment rate, is well known for being very volatile and prone to seasonal adjustment errors. For instance, there has been a surge in part-time positions in September for each of the last three years, which suggests the BLS’ models need tweaking.

Analysts at Merrill Lynch aren’t convinced the gains are sustainable given the economic drag likely from the “fiscal cliff” of tax hikes and spending cuts worth around 5% of GDP unless Congress acts before year end. Already, political uncertainty has CEOs nervous, withholding capital investments and new orders.

That will drag on employment in the months to come. Unless payroll gains increase markedly, the drop in the unemployment rate won’t be maintained — the point made in the Merrill Lynch chart above.

Payroll gains of around 100k just won’t cut it. According to Gluskin Sheff economist David Rosenberg, given that we’re in the 39th month of an economic expansion, typical monthly payroll gains would be around +220,000. Also, 47% of private sector firms either cut their staffing requirements or held them steady, up from 42% just three months ago. Fewer than 40% of manufacturers are hiring.

No surprise then that over half the payroll gain was concentrated in two sectors: Education/health and leisure/hospitality, which combined represented just a 25% share of overall employment.
Also, weekly wage gains were offset by higher costs at the gas pump and at the grocery store. Thus, despite the drop in the unemployment rate, Rosenberg expects Q3 GDP growth to still clock in around 1.5%. This just isn’t fast enough.

Philippa Dunne of the Liscio Report notes that we’ve regained close to half — 48% — of the jobs lost between December 2007 and February 2010. At the current pace of job creation, it’ll take 40 months to recoup all the losses.

The proof is in the pudding. If the job gains translate into higher spending and income data, and stronger September retail sales numbers, than the critics and skeptics will be proved wrong. At this point, with CEO confidence dropping hard, I don’t think that’s likely.