January’s retail sales report is red hot … how strong are U.S. shoppers? … looking at disposable income, savings, and debt … a special live event this afternoon with Louis Navellier

Shoppers just keep spending.

Yesterday, we learned that January retail sales smashed expectations, climbing 3%, which was miles ahead of the 1.9% Dow Jones estimate.

Here’s CNBC with some details:

Sales at retailers rose far more than expected in January as consumers persevered despite rising inflation pressures…

Food services and drinking places surged 7.2% to lead all major categories. Motor vehicle and parts dealers increased 5.9%, while furniture and home furnishing stores saw a rise of 4.4%…

No categories saw a decline, following a December in which sales fell 1.1%.

Interestingly, on a year-over-year basis, retail sales increased 6.4%.

Does that percentage sound familiar?

It should – it’s the exact same reading as Tuesday’s Consumer Price Index report.

Broadly speaking, the U.S. shopper is still opening his/her wallet at the same approximate level as 12 months ago, despite inflation.

So, does that mean the U.S. shopper is healthy then? Can we shrug off the recession chatter?

To help us answer this, let’s evaluate some additional, related data.

Where is the money coming from?

There are a few options…

There’s the disposable income left over from a salary after paying bills… there’s debt… and then there’s savings.

Let’s begin by looking at the status of disposable income.

From Advisor Perspectives at the end of January:

With the release of Friday morning’s report on December’s personal incomes and outlays, we can now take a closer look at “real” disposable personal income per capita…

The year-over-year metrics are 2.71% nominal and -2.20% real.

To make sure we’re all on the same page, “nominal” refers to the stated value. “Real” subtracts inflation. Real is a more accurate measure of your actual buying power.

So, while disposable income has “grown” 2.71% at face value since this time last year, inflation has eroded the actual buying power of that income by 2.20%.

Translation, your paycheck isn’t going as far.

While this doesn’t offer much color on the absolute value of disposable income that shoppers have, it does show us that real wages as a source of disposable income are moving in the wrong direction.

To get a better sense for how well this disposable income is meeting monthly budget needs, here’s CNBC:

As of December, 64% of Americans were living paycheck to paycheck, according to a recent LendingClub report — up from 61% a year earlier and in line with the historic high first hit in March 2020.

For the first time, more than half of all six-figure earners also said they were stretched too thin, a jump from 42% a year ago.

Not great.

These statistics reveal that disposable income isn’t a fantastic source of funding for U.S. shoppers today.

What about debt?

Last month, NerdWallet published its annual household debt survey.

Overall, it found that U.S. household debt has climbed to $16.5 trillion, a 7.65% increase from the year before.

From Sara Rathner, a NerdWallet credit card specialist:

Credit card debt is often thought to be the result of frivolous spending, but for many Americans, that’s just not true.

Consumers are feeling the squeeze of higher prices and interest rates, and paychecks just aren’t keeping up. That’s forcing many to make tough decisions, like going into debt to pay for necessities.

The survey of more than 2,000 U.S. adults found that median household income last year grew by just 4% while the overall cost of living surged by 8%. This gap is what’s driving the added debt spending.

With that context, take a guess…

What is the average credit bard balance for the U.S. consumers survey in NerdWallet’s study?

$17,066.

Now, another guess…

What’s the average interest rate on a new credit card today?

20.28%.

Ouch!

Here’s CreditCards.com:

It’s never been less affordable to carry debt on a brand-new card.

According to CreditCards.com’s latest Weekly Rate Report, the average APR for brand-new cards broke another all-time record this week, settling just two basis points below 20.30 percent for the first time ever.

That’s up by a record 4.15 percentage points, year over year, and is well above previous peaks.

By the way, CreditCards.com reports that just over three-quarters of all cards now charge maximum annual percentage rates of over 27%.

So, yes, credit usage – at an egregious interest rate, I’ll add – is a source of today’s robust consumer spending.

While that might be good for the economy in the here-and-now, it’s unsustainable long-term.

Finally, what about savings?

How much longer will pandemic-related savings balances stay in the black?

Let’s jump straight to The Wall Street Journal:

In 2020 and into 2021, a combination of government pandemic stimulus and reduced spending, for example on restaurants and travel, fattened Americans’ wallets.

Households amassed $2.7 trillion in extra savings by the end of 2021, according to Moody’s Analytics.

This cash helped Americans make it through a period of high inflation last year, but the forces that had acted to boost savings reversed direction as pandemic relief unwound and prices soared.

Despite this reversal, studies suggest U.S. shoppers still have much of their pandemic savings cushion remaining.

I’ve read different estimates about how much. JPMorgan expects pandemic savings to run by out sometime around this summer. Goldman Sachs is more optimistic. It believes that by the end of the year, there will still be some 35% of pandemic savings remaining.

Either way, let’s not miss the bigger picture…

This source of consumer spending is on its way out.

Here’s Yahoo! Finance:

These [pandemic-based] accumulated savings for consumers have powered robust spending, even in the face of 40-year highs in inflation and a softening labor market.

But with no new stimulus programs imminent and the economy showing some signs of feeling the impact of the Federal Reserve’s aggressive rate hikes, the ability for U.S. consumers to power unexpected growth will likely to come to an end.

Now, there are two ways we can take this Digest at this point

The first way is “caution.”

Consumer spending makes up roughly 70% of the U.S. GDP. So, if it dries up, so too do corporate earnings. That supports the case for caution with your portfolio.

But we’ve written that Digest before – and we will again.

So, instead, let’s end today with one option for help if you’re one of the growing number of Americans with strained cash-flows.

Here’s legendary investor Louis Navellier:

Today, an income investing breakthrough will be unveiled.

You could use this to generate an extra $50,000 over the next year.

You see, when it comes to income investing, you’re probably used to hearing about dividends that pay a measly 2%… or bonds that pay 5% interest… 
 
But what if I told you there’s a secret income investment that could hand you phenomenal returns – 10… 20… even 40 times higher than the best paying dividend stocks on the market? 
 
What’s more, it has nothing to do with options, bonds, or any traditional income investment you may know. 

To dive into the details, Louis is holding a special live event today at 4 PM ET called the $50K Cash Comeback.

He’ll be showing multiple real-life examples of his groundbreaking income investment in action. It’s a market strategy that Louis says can deliver real, hold-in-your-hand income time and time again.

He’s even giving away the name and ticker of a trade idea that’s usually reserved for his paid-up subscribers.

While I won’t let the cat out of the bag, Louis’ breakthrough rests on his quant approach to the stock market.

“Quant” simply means Louis uses numbers and algorithmic rules to guide his investment decisions. Forbes actually gave him the title “King of Quants.”

Louis’ models have forecasted some of the biggest stock-market winners of the past 40 years. They identified Apple at $1.38… Oracle, when it was trading at only 51 cents per share… They even forecasted the rise of Amazon when its price was just $46.

Today, Louis is turning his algorithms toward a new goal – helping alleviate the cash-crunch.

To get all the details, join Louis today at 4 PM ET. You can reserve your seat for free by clicking here.

If your cash-flows are growing strained, tune in simply to learn what options are available to you.

Have a good evening,

Jeff Remsburg