Is the American consumer still all right? Several signals this week are flashing yellow, upping the ante as investors’ attention turns to the Federal Reserve meeting on Wednesday. First, on Tuesday, retail spending in May showed a 0.9% decrease versus April, which itself was revised lower to indicate a 0.1% monthly decline, down from the 0.1% increase reported previously. The primary contributor to the decline was a 3.5% monthly decrease in sales at motor vehicle and parts dealers. Recall, a 25% tariff on vehicles not assembled in the U.S. went into effect on April 3, which, according to S & P Global Mobility, made up 46% of domestic sales in 2024. Another less direct signal of the weakening demand was Amazon’s announcement Tuesday that its July Prime Day event has been extended to 96 hours this year, up from two days last year. The extended timeframe may simply be a move to try out a new sales feature called “Today’s Big Deals” from big brands like Samsung, Kiehl’s and Levi’s. But we tend to believe that the extension of a well-established sale is an attempt to gin up demand. The University of Michigan’s consumer sentiment index for the U.S. rebounded to 60.5 in June, up from the 52.2 in April and May, but it’s still well off the recent high we saw in December (74) or even the level seen in February (64.7) when President Donald Trump’s tariff talk started to ramp up. And while it’s too soon to measure the impact of the Israel-Iran conflict or the possibility of direct U.S. involvement, we assume the uncertainty is a net negative on consumer spending. That’s even more true as energy prices, which represent a largely unavoidable cost for consumers that competes with discretionary spending, start to creep up as investors price in a “geopolitical premium,” reflecting the implications of a supply shock should Iran’s contribution to global supply start to wane. All of this adds even more importance to the Fed meeting later Wednesday, even as the market is widely expecting the central bank to keep rates unchanged in the range of 4.25% to 4.5%. It’s more about where rates may go later this year. To that end, investors will be closely listening to Fed Chair Jerome Powell’s press conference Wednesday to better understand how the central bank is thinking about the potential of weakening consumer demand at the same time energy prices have started to rise. That is a key factor when it comes to inflation given that energy costs ripple through every aspect of the global economy. The Fed needs to balance price stability and full employment, and right now it’s facing risks on both sides of its dual mandate. The central bank’s latest economic projections, released only quarterly, also are due out Wednesday and carry the potential to move markets. To be sure, consumer demand remains pretty strong on the whole. As noted, retail sales were heavily weighed down by vehicle sales, which represent large, often-financed purchases that were also hit with sizable tariffs. Other categories saw monthly gains. In addition, there have been positive updates in the restaurant sector, with both foot traffic and sales picking up, according to UBS. If anything, the consumer is becoming more budget-conscious and hungry for deals, but still spending. As long as the labor market holds in there , that may continue to be the case. We will continue to monitor for signs of further weakening from the consumer, which will in turn give us insight into the economic backdrop more broadly. Remember, private consumption accounts for roughly two-thirds of U.S. GDP. At the moment, our retail names are well positioned whether consumer confidence bounces back like we hope, or should it deteriorate further. Amazon is clearly ready to lean into promotional activity in order to keep the consumer shopping with them and has the scale to force merchants to play along. Costco also has the scale to keep prices low and buy selling in bulk can offer consumers prices they can’t find anywhere else on daily essentials. Meanwhile, TJX Companies can still draw in consumers thanks to the best-in-class value it offers and stands to benefit from consumer push back on full-priced retailers by scooping up any quality unsold inventory. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) 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.
