Something More Than Feelings A business mentor of mine would retort “cite your source” to qualify any argument I was making. A common argument today asserts that with the developed world economies fragile and global unemployment levels high, the anecdotal information suggests that global consumers live in a tent city.

After years of binging on cheap credit and failing to save, households find themselves holding their noses to swallow forced austerity plans, crippling global consumption and economic growth. Forced deleveraging is the economic virus limiting global economic progress. Do you agree or disagree? Cite your source.

The Global Consumer

There are approximately 7 billion people on the planet. The global economy approximates $75 trillion, making per capita GDP about $11,000 or so. The world population grows by about 80 million per year, or about 1.2 percent. If the global real economy grows more than about 1.2 percent annually (it averages 3-plus), then global per capita GDP grows 2-3 percent. Furthermore, as per capita GDP rises, the share allocated to necessities falls while the expanded remainder becomes discretionary.

For example, according to the Consumer Electronics Association, global consumer technology spending will eclipse $1 trillion dollars in 2012. Of that, the “old middle class” developed world will spend $557 trillion while the emerging world “new middle class” will spend $446 trillion. Satiated “old middle class” consumers added 2 percent to technology spending in 2011, while the aspirational “new middle class” grew spending 17 percent in 2011.

Underscoring these trends, according to Nielson Holdings, global consumer confidence is at pre-recessionary levels. So, while there are issues restraining global consumers, at the margin global per capita wealth and confidence is growing. With basic necessities satisfied on average, all of the incremental gains accrue to discretionary spending. The global consumer is not living in a tent city, they are shopping at Home Depot!

Markets Don’t Lie

If the economic proof hasn’t convinced you that the Pottery Barn glass is half full, let’s review the global consumer’s stock market influence. Within the MSCI World index, consumer discretionary stocks represent 10.92 percent of the index’s value, well above the five-year average weighting of 9.77 percent.

Within the S&P 500, the consumer discretionary sector now accounts for 11.22 percent of the S&P 500 compared with a five-year average of 9.52 percent. Examining annualized returns over the last one, three and five year periods (ending 4/30/12), the S&P 500 consumer discretionary sector returned 14.55, 27.30 and 4.99 percent respectively, compared with 4.76, 19.46, and 1.01 percent for the S&P 500.

The source material paints quite a different picture than our anecdotal assumption. Most remarkable to me is the sheer scale of global consumer-related franchises like Apple. As the global middle class grows, and discretionary spending capacity grows, and consumer credit becomes available, the growth curve becomes parabolic. This trend underlies today’s global economy and confounds those who profess that the great deleveraging must occur to the exclusion of global growth. Truth be told, we can have both.

David Waddell, who is regularly featured in the Wall Street Journal, USA Today and Forbes, as well as on Fox Business News and CNBC, is president and CEO of Memphis-based Waddell & Associates.