Welcome to the Sunday recession news roundup. Today, we have a theme: frugal consumer spending. How is tightening consumer spending affecting the market, and who are the winners and losers of this change in behavior? Without further ado, the roundup:

• Wise Bread: Does Frugality Hurt the Economy? - Remember those rebate checks? The point was to increase consumer spending, specifically discretionary spending. But most put their rebate checks towards their bills or towards savings, as a part of smarter and more frugal spending. But Brewer asks: Is this hurting the economy? Is it better for us to spend rather than save? In his opinion, there are indeed downsides like less money spent in the economy, but frugal spending causes less fear about recession and more economic stability. His rationale is not all that impressive, but his argument has merit: smarter spending, in my opinion, means more innovation to create smarter, cheaper, and better products. This in turn creates new market opportunities and new job creation. Coupled with less debt, a more frugal economy would be more efficient and more innovative.
• Wal-Mart had a strong report recently, but Target did not. The rationale according to 24/7 Wall Street? Consumers turn to Wal-Mart when they are penny pinching. Wal-Mart indeed seems poised to benefit from a recession. As a result, the stock’s jumped 21% this year.
• Google CEO Eric Schmidt doesn’t think we’re headed for recession. People have asked if the tech sector is “recession-proof” (no, it isn’t), but Google has fared pretty damn well in recent weeks. A good deal of large businesses are not as worried about the economy’s condition as they see positive signs come to light.

Overall, consumers are more pessimistic than businesses over the economy’s condition. That’s why consumers have tightened spending. But certain companies and markets are winners and losers. Internet advertising is a winner (it better targets consumers for cheaper), while traditional print and television advertising is more likely to lose. Wal-Mart and discount chains are winners, while moderate and high-end stores are more likely to be losers. The question is how long consumers will spend frugally and by how much will they change their lifestyle.

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The news and blogosphere continue to have an evolving debate over the condition of the economy. Joe Markman at MSN Money and James Pethokoukis of U.S. News and World Report both give optimistic assessments of the economy.

Markman asserts that the economy has not crashed as the bears have feared (i.e. the economy still grew in Jan-March, though only by 0.6%) and that money is flowing back into the economy. Pethokoukis points to statements from the White House’s Chief Economic Advisor Edward Lazear and to Wal-Mart beating expectations as indicators that the economy isn’t going to hell.

Of course, it wouldn’t be a debate without a lot of people claiming the opposite. The Big Picture blog makes the assertion that there’s often positive signals and growth before an economy falls into recession (wait, wouldn’t an economy always grow before it shrank though?). But a far more sobering picture is painted by the Economist of the housing bubble. Here, let me give you a quote from the article:

Mr Bernanke’s maps use figures from the Office of Federal Housing Enterprise Oversight (OFHEO). Its statistics have broad geographic reach and track repeat sales of the same house. The monthly national index suggests average prices have fallen only 3% from a peak in April 2007, and the quarterly figures are still positive. But OFHEO’s figures include only houses financed by mortgages backed by the government-sponsored giants, Fannie Mae and Freddie Mac. They leave out the top and bottom of the market—where prices rose fastest during the bubble and where the mortgage mess was most severe.

The article states that investors expect a 11-13% correction of housing prices (prices will keep dropping and foreclosures will keep rising), but some of the hardest hit states, like California and Flordia, could see another 25%.

Regardless, the debate continues, and we’re not going to know for another 3-6 months what direction the economy will take. Even then, there could always be a sudden nosedive.

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