Consumers are spending like they have money because they do, says Jan Kniffen

Core Insights - Retail sector has seen unexpected consumer spending during the holiday season despite economic concerns, with a projected holiday spend increase of 4 to 5% [5][6] - Consumer sentiment remains low, but spending is driven by employment stability and rising wages, which are outpacing inflation [2][3] - The impact of tariffs on retail prices has been less severe than anticipated, with price increases on tariffed discretionary goods around 3%, significantly lower than initial expectations [6][9] Group 1: Consumer Spending - Consumers are spending more than expected, particularly in the upper half of the income distribution, while the lowest income groups are struggling [4][5] - The holiday spending is projected to yield good gross margins for retailers, indicating strong earnings potential [5][6] Group 2: Economic Environment - GDP is performing well, but consumer sentiment is low, suggesting a disconnect between economic indicators and consumer feelings [2] - Employment conditions are favorable, with job security and wage growth contributing to consumer spending behavior [3] Group 3: Tariff Impact - Initial fears regarding tariffs led to expectations of price increases exceeding 6%, but actual increases were around 3% due to effective supply chain management by retailers [6][8] - The inflation rate is currently around 2.7%, which is manageable compared to previous highs, indicating that tariffs did not significantly contribute to inflation as feared [9][10] Group 4: Retailer Performance - Larger, well-capitalized retailers have largely remained unscathed by economic challenges, while smaller retailers face bankruptcy and market share loss [10][11] - The number of bankruptcies is increasing, but established retailers like Walmart continue to perform well [10][11]