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Question before the House: Why are you and your neighbors feeling so low, but still spending at the local mall?Look over the latest polls of how American consumers are feeling right now: It’s painfully clear how down in the dumps we all are. For evidence, check out the latest reading on the Consumer Comfort Index.By way of background, the ABC News Consumer Comfort Index represents a rolling average based on telephone interviews with 1,000 adults nationwide each month. The index is based on three core questions: respondents rate the condition of the national economy, the state of their personal finances, and whether now is a good time to buy things.Judging by the recent data, we’re all pretty miserable: The index is down seven points over the past two weeks to its 2010 low reached in February.In fact, it's now just four points above its record low in early 2009.What exactly is the matter with all of us?After all, notes Dr. Ed Yardeni of Yardeni Research in his morning missive today, the economy is growing, the financial crisis is abating, and the stock market is soaring.The SPDR S&P 500 ETF (SPY), which includes holding like Exxon (XOM), Microsoft (MSFT), General Electric (GE) and Bank of America (BAC), is up 8% year-to-date and up 42% in the past 12 months.Yes, the labor market is lousy, but the chances of you getting canned, Yardeni emphasizes, has fallen along with initial unemployment claims.Okay, so what's the problem?We checked in this morning for a chat with Yardeni to hear what he thinks.Basically, the investment strategist argues, Americans are depressed about their government. Their gripes, so he says, differ depending on where they sit on the socio-economic ladder.Low-income Americans, says Yardeni, are frustrated because they don’t see many opportunities to raise their incomes despite all the stimulus programs passed by Congress.Also, a lot of them have negative equity in their homes and are facing foreclosure. (Indeed, economists emphasize, foreclosure filings rose nearly 20% last month to record highs.)As for the country club set, Yardeni says, the tax man is raining on their parade. As he notes, high-income families have seen their state and local taxes go up and know that their federal taxes are heading higher.Other spoilers, he points out: Folks living on interest and dividend income are getting much less return on their money, and some will have to pay higher taxes on this income; the national pump price for a gallon of gasoline has jumped from $1.67 at the start of last year to $2.81; the jobless are receiving extended unemployment benefits, but that’s because the duration of unemployment is much longer than in past recessions.(Incidentally, a separate Pew poll just released showed public trust in government at 22%, among the lowest measures in half a century).But here's where it gets interesting, and where some of the biggest brains in this business start to disagree.Given how very depressed the consumer is, you might expect him to stay hunkered down, stitching patches into his T-shirts, living off cans of tuna, and cutting up his credit cards in preparation for the Armageddon he sees fast approaching.Not so. Actually, that same depressed consumer is busy buying up gadgets, toys, and clothes at an increased clip.James Altucher of the New York Post recently spelled out 25 statistics and anecdotes explaining why, in his words, the strength in the economy is real.Among the reasons that the columnist cites: Retail sales are up 10% year-over-year. He emphasizes that consumer spending had its fastest increase in three years last month.And check out the latest report from Apple (AAPL): The company just hit it out of the park.As our own Glenn Curtis writes this morning Apple put $3.33 a share on the scoreboard, which was a nautical mile north of the $2.45 analysts had been figuring on. It pummeled the expectations on the top line too. (See Beware of the Potentially Poisonous Apple.)Now the debate among the heavy hitters zeros in on what’s fueling this spending splurge. Is it natural and sustainable?Hardly, says Gluskin Sheff’s David Rosenberg.The bearish iconoclast -- he prefers "realistic" -- thinks this retail spending that we’re seeing results from two factors: double-digit growth in tax refunds as well as strategic defaults by various homeowners.
The reliably grumpy market pundit argues more Americans are gathering around the kitchen table at night and deciding, deliberately, to skip out on their mortgage payments, using the money instead to buy jeans at the Gap (GPS) or take the kids to Disneyland (DIS).Rosenberg crunched the numbers and figures this weird new cultural phenomenon has added a lot of oomph to consumer pocketbooks.Specifically, by his math, strategic defaults have added as much as $200 billion to household cash flow at an annual rate.Yardeni has a different take, however.The surprising resilience of consumer spending is due, he says, to this: Inflation-adjusted pay has been hovering at a record high over the past six months.Yardeni calculates this number every month after personal income data are released by the government. Real pay per worker is total wages, salaries, and benefits (earned income) divided by total payroll employment, adjusted by the personal consumption expenditures deflator (the Fed’s favorite inflation measure).It's highly correlated with productivity, he says, which rocketed to a new high at the end of last year. This suggests that real pay will soon do the same, he argues.“The purchasing power of those working, and that is still 90% of the workforce, is at an all-time high,” Yardeni tells us, adding that he believes therefore that the consumer spending uptick we’re seeing is sustainable.“Purchasing power per worker is likely to move higher in 2010 and, if employment stops falling, which it seems to be doing, then consumers will fundamentally have the power to drive spending higher this year and probably next year,” he says.As for investment implications for all this, Yardeni says that he remains bullish on the Consumer Discretionary sector.“I find it hard to believe that the strength of Consumer Discretionary stocks in general, and retailers in particular, is attributable to consumers not paying their mortgage payments,” he tells us.Of course, aside from this economic mumbo-jumbo, there's another reason why consumers feeling blue might decide to shell out money for a new flat-screen TV: It just makes them feel better.In other words, our collective cure for depression is shopping. “When we Americans are happy, we spend money,” Yardeni says. “When we are depressed, we spend even more.”Buzz & Banter: Trading ideas & insights from 30 professional traders 14 day FREE trial.
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