Americans are spending despite high inflation. Good for a couple Club stocks

Fresh economic data this week shows Americans are shopping more than expected at the start of the year, even as prices continue to rise. That may be good news for some of the Club’s retail holdings, but less so for the broader market — because the numbers suggest the Federal Reserve will need to keep raising interest rates to cool the economy and tame still-elevated inflation. U.S. retail sales rose 3% month-on-month in January, far outpacing the Dow Jones estimate of a 1.9% increase, the Commerce Department said Wednesday. The surge was driven by spending at restaurants and bars, followed by shopping for cars and furniture. While some spending categories were flat, there were no declines across the board, compared with a 1.1% drop in sales in December. The government’s retail sales figures are not adjusted for inflation. At the same time, consumer prices climbed higher than anticipated last month, the Labor Department said Tuesday. The 0.5% monthly increase demonstrated persistent inflation, despite eight interest rate hikes by the Fed since March 2022. American shoppers have been buoyed by high savings stored up during the Covid-19 pandemic, which have allowed them to pay up for more expensive goods and services. In a research note Monday, Citi estimated those savings could total close to $2 trillion. “Excess savings are not only larger than assumed but could potentially support consumption through an even longer horizon,” Citi analysts wrote. As the pandemic has subsided and the world has largely reopened, consumers have focused their retail spending on activities and experiences that get them out of the house. In a survey on consumer behaviors and spending patterns released Monday, William Blair found “mostly favorable demand trends” in the travel and live entertainment industry. Of the survey’s 500 respondents, 60% said they’re planning to vacation this year for “as long as” years past, while 22% said they’ll do so for “somewhat longer” and 8% for “much longer.” But consumers are more hesitant when it comes to shelling out cash for discretionary goods. E-commerce spending declined 2% year-over-year in January, Bank of America said Monday, as Americans shifted their spending towards leisure activities. That trend aligns with earnings reports this season from some of the Club’s key retail holdings. Walt Disney (DIS) and casino operator Wynn Resorts (WYNN) both benefited from a growing consumer appetite to spend on experiences last quarter, while e-commerce giant Amazon (AMZN) saw revenue slow. The Club take Consumer spending remains healthy, despite stubbornly high inflation, and it would appear many shoppers have additional savings to dole out. Companies like Wynn and Disney that offer unique experiences and services are poised to benefit from pent-up demand for travel and entertainment. Both companies noted on their recent earnings conference calls that strong demand seen in the fourth quarter had carried over into the current one. But this week’s data also shows that the Fed still has work to do to rein in still-expanding inflation. That likely means more rate rises are on the horizon, which could temper equity markets’ strong start to the year. However, inflation is overall trending in the right direction, which points to the Fed ending rate hikes later this year. As a result, we remain optimistic that we are, indeed, in a bull market — despite any short-term pain markets may experience. (Jim Cramer’s Charitable Trust is long WYNN, DIS, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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In this handout photo provided by Walt Disney World Resort, guests stop to take a selfie at Magic Kingdom Park at Walt Disney World Resort on July 11, 2020 in Lake Buena Vista, Florida.

Matt Stroshane | Walt Disney World Resort | Getty Images

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Americans are spending despite high inflation. Good for a couple Club stocks

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Americans are spending despite high inflation. Good for a couple Club stocks

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