Raphael Stevens

Fresh economic data Wednesday showed U.S. consumer spending slowed during the holiday season as inflation, though easing, continued to squeeze shoppers. That’s likely to make off-price retailers like Club holding TJX Companies (TJX) even more attractive to many Americans looking for cost-saving deals in the new year. Total retail sales in the U.S. dropped 1.1% in December month-on-month, the Commerce Department said Wednesday, in the second consecutive monthly decline. Retail sales had fallen by 1% in November. The monthly sales report, which is not adjusted for inflation, showed declines across a range of categories, with a steep drop of 6.6% in department-store sales and a 4.6% fall in sales at gasoline stations. The retail data comes as the Labor Department’s producer price index, also released Wednesday, showed prices of wholesale goods and services came down at a faster rate than expected in December. That’s a sign the Federal Reserve’s interest rate hikes are working to slow inflation, which could benefit consumers. But with the state of the economy still uncertain — inflation remains high, even as fears of a recession persist — Morgan Stanley on Wednesday highlighted off-price retailers like TJX and competitors Ross Stores (ROST) and Burlington Stores (BURL) for their “defensive qualities in the face of recession.” Companies like TJX, which operates stores like T.J. Maxx and Marshalls, have benefited from a retail inventory glut that’s plagued major department stores over the past year, buying up excess apparel and other items at a discount then passed onto shoppers. Morgan Stanley analysts expect off-price retailers to benefit from consumers shifting spending habits away from high-end shopping toward discounts. “Looking into 2023, we think TJX, ROST & BURL’s businesses should benefit from trade down once again, as well as see margin tailwinds on normalizing freight costs & [merchandise] margins, creating an attractive setup for the sub-sector in a potentially challenging macro environment,” the analysts wrote in a research note. The analysts singled out TJX as the only off-price retailer to successfully raise prices over the last couple years, helped by their more than 20,000 vendor partners, while also attracting a higher-income demographic compared to competitors. Shares of TJX closed down 2.13% Wednesday, at $79.81 apiece. Bottom line A second consecutive monthly drop in retail sales shows that shoppers are increasingly careful about how and where they spend their hard-earned dollars. This trend could be foreshadowing slower growth in upcoming retail earnings for the first quarter. At the same time, if inflation continues to moderate, it could create space for more discretionary spending. But for the moment, inflation is still a challenge for many consumers, even as the economy slows. This positions TJX to be a preferred shopping destination during a potential economic downturn. Off-price retailers like TJX have a great opportunity to snag a wide range of merchandise from big-box retailers with elevated inventory for very cheap prices. They can then sell items quickly, which allows for quick product turnover and a boost to their top lines. TJX also offers a dividend yield of 1.44% to shareholders, sweetening our investment case. TJX is set to report its fiscal fourth-quarter earnings on Feb. 22. (Jim Cramer’s Charitable Trust is long TJX. 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.

A shopper carries a bag outside a TJ Maxx store in New York, U.S.
Victor J. Blue | Bloomberg | Getty Images

Fresh economic data Wednesday showed U.S. consumer spending slowed during the holiday season as inflation, though easing, continued to squeeze shoppers. That’s likely to make off-price retailers like Club holding TJX Companies (TJX) even more attractive to many Americans looking for cost-saving deals in the new year. More

Disney said one of the reasons it decided not to give activist investor Nelson Peltz a board seat was his lack of media and entertainment expertise.
Nearly every current member of the Disney board came from industries that aren’t associated with media and entertainment.
While Peltz may still not be right for the Disney board, if this is a compelling argument for Disney, it suggests it may want to add new directors with media industry experience.

Nelson Peltz
David A. Grogan | CNBC

Disney directors unanimously rejected activist investor Nelson Peltz’s request to join the board this month, in large part due to his lack of media industry expertise.
That would be a stronger argument if Disney’s current board members had ample media and entertainment experience when they joined. Almost all of them didn’t.

This isn’t justification for Peltz’s case to join the board. Many public company boards have directors with a wide variety of experience. Peltz’s strongest claim for a board seat is probably ensuring that succession planning finally happens in an organized and coherent way – which doesn’t appear to be the primary argument he’s making.
Still, if Disney feels it’s important for Peltz to have media and entertainment experience, it may want to make broader changes to its board to bring on several other people who can navigate a complicated and rapidly changing industry. A Disney spokesperson declined to comment.
According to a company filing Tuesday, Disney decided not to offer Peltz a board seat because he didn’t suggest any specific strategic ideas and had minimal industry experience.
“Among the drivers for such concern was the combination of Mr. Peltz’s lack of media or technology industry experience coupled with his repeated focus in his presentation on successful approaches from businesses like Heinz, Procter & Gamble and DuPont which have little in common with Disney,” Disney wrote.
It’s true that Peltz has minimal experience on media boards, though he did serve as a director of MSG Networks from 2014 to 2015 and still serves as a Madison Square Garden director. But Disney’s board is filled with directors whose prior experience have little to do with streaming services, legacy pay TV, theme parks or films. Their collective experience is actually closer to businesses like Heinz and Procter & Gamble.

Disney’s board

Newly appointed chairman Mark Parker has been employed at apparel-marker Nike since 1979, serving as CEO from 2006 to 2020.
Safra Catz was an investment banker before she joined enterprise technology company Oracle in 1999, where she’s been CEO since 2014.
Mary Barra has been CEO of General Motors since 2014. She first got a job at GM in 1980. Her background is in electrical engineering.
Francis DeSouza is CEO of Illumina, a biotechnology company. Before that, he was president of products and services at cybersecurity company Symantec.
Michael Froman is vice chairman and president of strategic growth at Mastercard since 2018. He worked at Citigroup from 1999 through 2009. He’s also held a variety of government jobs.
Maria Elena Lagomasino is CEO of WE Family Offices, a wealth advisor serving high net worth families. She’s held a variety of roles at financial firms for the past four decades.
Calvin McDonald is CEO of athletic apparel company Lululemon. His prior jobs were all in the retail industry.
Derica Rice was formerly the president of CVS Caremark. Before that, he worked at pharmaceutical company Eli Lilly.

Only CEO Bob Iger, Amy Chang and Carolyn Everson have some prior experience in media. Chang’s experience is tangential to Disney’s core business, as global head of product at Google Ads Measurement. Everson just joined the board in September — perhaps a sign Disney’s board is also acknowledging its own relative lack of media understanding.
Disney’s board members have experience in operations, brand management and technology. But Peltz argued in a CNBC interview that Disney should be viewed more as a consumer company than a media company.
“This is a lot more than a media company. This is a consumer company, with a basketful of the greatest brands in the world,” Peltz said.
Disney’s choice in directors seems to be in accordance with that viewpoint. But as decisions await such as whether to spend $10 billion or more on Comcast’s 33% stake in Hulu and what to do with a slowly dying legacy cable network business, perhaps Disney finally needs more media expertise on its board.
WATCH: Disney is more than a media company, it’s a consumer company, says Trian’s Nelson Peltz

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Many people still identify with being in the middle class, although that doesn’t mean what it used to.
Inflation is largely to blame.

As inflation spiked, Americans in the middle class were particularly hard hit.
For them, prices increased faster than their income, according to a September report by the Congressional Budget Office. Households in the lowest and highest income groups saw their income grow faster than prices over the same time period, the report found.

Even though middle-class wage growth is high by historical standards, it isn’t keeping up with the increased cost of living, which in December was up 6.5% from the prior year — making it harder to live the same lifestyle previous middle-class generations did.
More from Personal Finance:4 key money moves in an uncertain economyHere’s the best way to pay down high-interest debt63% of Americans are living paycheck to paycheck
Nearly three-quarters, or 72%, of middle-income families say their earnings are falling behind the cost of living, up from 68% a year ago, according to a separate report by Primerica based on a survey of households with incomes between $30,000 and $100,000. A similar share, 74%, said they are unable to save for their future, up from 66% a year ago.

The middle class is shrinking

Economists’ definitions of middle class vary. The Pew Research Center defines middle class as those earning between two-thirds and twice the median American household income, which was $70,784 in 2021, according to Census Bureau data. That means American households earning as little as $47,189 and up to $141,568 are technically included, although the median income is roughly $90,000.
As is often cited, the share of adults who live in middle-class households is shrinking. Now, 50% of the population falls in this group as of 2021, down from 61% 50 years earlier, according to Pew.

Their share of the country’s wealth is also getting smaller, while the top 1% continue to amass more and more, several other studies show.

‘It is only going to get worse’

Blueflames | Getty Images

Financial well-being is deteriorating overall, according to a recent “Making Ends Meet” report by the Consumer Financial Protection Bureau.
Across the board, households have been slow to adjust their spending habits. Even as prices rise significantly, consumer spending hasn’t changed that much.
To bridge the gap, Americans are dipping into their savings accounts and running up credit card balances. That leaves them more financially vulnerable in the event of an economic shock.
With economists now forecasting a possible recession, 62% of middle-income households said they need to get financially prepared, Primerica also found.

“Unfortunately, I think it is only going to get worse,” Ted Jenkin, CEO at Atlanta-based Oxygen Financial and a member of CNBC’s Advisor Council, said of Americans’ financial standing.
Hope for the American dream is at an all-time low, especially among the middle class, according to the latest Gallup poll, which tracks Americans’ assessments of the next generation’s likelihood of surpassing their parents’ living standards.
Now, 59% of middle-income Americans — or those making between $40,000 and $100,000, according to Gallup — said it is very or somewhat unlikely that today’s young adults will have a better life than their parents compared to only 48% of those with annual household incomes under $40,000 who feel that way. 

Amid inflation, ‘you really have to get disciplined’

“As middle-income families prepare for a possible recession this year, it’s more vital than ever that they take control of their personal finances by addressing debt, setting a budget and keeping spending in check,” Glenn Williams, Primerica’s CEO, said in a statement. 
Experts often recommend starting with high-interest credit card debt. Credit card rates, in particular, are now more than 19%, on average — an all-time record. Those annual percentage rates will keep climbing, too, as the Federal Reserve continues raising its benchmark rate.
If you currently have credit card debt, tap a lower-interest personal loan or 0% balance transfer card and refrain from putting additional purchases on credit unless you can pay the balance in full at the end of the month and even set some money aside.
“You really have to get disciplined or you’re going to outspend your income,” Jenkin said.

To curtail your spending, Jenkin said some simple financial hacks can help, such as going to the grocery store less and cutting back on online shopping.
“Grocery stores are just like Las Vegas; they are there to separate you from your wallet.” Meal planning is one way to edit down your shopping list to weekly essentials and save money.
Disabling one-click ordering or deleting stored credit card information can also help. “Anyone that shops on Amazon and has a stored credit card, you are basically pouring lighter fluid on your budget,” Jenkin said.
Jenkin recommends waiting 24 hours before making an online purchase and then using a price-tracking browser extension such as CamelCamelCamel or Keepa to find the best price.
Finally, tap a savings tool like Cently, which automatically applies a coupon code to your online order, and pay with a cash-back card such as the Citi Double Cash Card, which will earn you 2%.
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Holiday sales came in below industry expectations, as shoppers felt pinched by inflation and rising interest rates.
Sales during November and December grew 5.3% year over year to $936.3 billion, below the NRF’s prediction.
The gains include the impact of inflation, too, which drives up total sales.

Shoppers walk through the Urbanspace Holiday Shops at Bryant Park in New York, U.S., on Sunday, Dec. 12, 2021.
Gabby Jones | Bloomberg | Getty Images

Holiday sales came in below industry expectations, as shoppers felt pinched by inflation and rising interest rates, according to data from the National Retail Federation.
Sales during November and December grew 5.3% year over year to $936.3 billion, below the major trade group’s prediction for growth of between 6% and 8% over the year prior. In early November, NRF had projected spending of between $942.6 billion and $960.4 billion.

The retail sales number excludes spending at automobile dealers, gasoline stations and restaurants, and is based on data from the U.S. Census Bureau. It covers the period from Nov. 1 to Dec. 31.
The holiday sales gains include the impact of inflation, which drives up total sales. The consumer price index, which measures the cost of a broad mix of goods and services, was up 6.5% in December compared with a year ago, according to the Labor Department.
For retailers, the shopping season’s results reflect the challenges ahead. As Americans continue to pay higher prices for groceries, housing and more month after month, they are racking up credit card balances, spending down savings and having fewer dollars for discretionary spending.
Plus, retailers are following years of extraordinary spending. During the Covid pandemic, Americans fought boredom and used stimulus checks by buying loungewear, throw pillows, kitchen supplies, home theater systems and more.
That translated to sharp year-over-year jumps in retail sales in the past two holiday seasons — a 14.1% gain in 2021 and 8.3% gain in 2020. On average, holidays sales have grown by 4.9% annually over the past decade, according to NRF.

NRF Chief Executive Matt Shay said those upward leaps were unsustainable, especially as people return to commuting, going out to dinner and booking vacations again. Plus, he said, Americans are paying higher prices across the board, from pricier rents to more expensive groceries.
“It just signals that consumers continue to be cost-conscious,” Shay told CNBC. “They’re feeling it. They’re aware of the pressures of managing their daily, weekly, monthly expenses.”
Sales rose in most major retail categories during the holiday season. Online and nonstore sales saw the biggest year-over-year gains, jumping 9.5% during the holiday season. Sales at grocery and beverage stores, which have had significant price increases, rose 7.8% versus the year-ago period.
Demand in some categories noticeably weakened. Sales at furniture and home furnishings stores declined 1.1% and sales at electronics and appliances stores dropped 5.7% year over year.
Shay said in the year ahead, retailers will have to work harder to attract and retain customers.
“There’s a premium on execution,” he said. “Everyone will not be a winner in an environment in which consumers are more selective.”

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