Summary Points We estimate that household wealth is down by ~$8 trillion since the year began and investors are wondering whether that will put pressure on consumption trends. After all, the consumer is already feeling a pinch from surging gas prices, broad-based inflation, rising mortgage rates and tough comparisons. In this report we assess whether the consumer can tolerate a drop in wealth or if it’ll put them over the edge. We measure the wealth

Summary Labor markets are among the tightest on record with nearly two jobs available for every unemployed person. Part of the tightness is attributable to strong demand and part can be ascribed to scant supply. Real demand for goods and services is 5% higher than it was in 2019 even though there are (2)% fewer people to get the jobs done. Our view is that nominal PCE can grow strongly in 2022, but that surging

Summary Consumer discretionary stocks have come under pressure in recent months, and we want to know what’s priced in. We use a three-pronged approach to assess valuations at the individual stock level: (i) we analyze how consensus revenue expectations compare to ‘normal’, (ii) we estimate company-level operating leverage, and (iii) we use historical multiples to help us understand what type of beat/miss is being priced in. Consumer Durables: Consensus estimates call for companies in the

Summary Most categories of consumption are in an over-bought or under-bought position. Housing has a foot in each camp. Over the past two years, home sales were a million units above trend, but coming into the pandemic sales were 3 million units below trend. Demographics are likely to offer some support from this point forward, but the direction of mortgage rates will probably rule the day. We expect the surge in rates to drive a

Summary Prior to the pandemic, e-Commerce growth had been outpacing brick-and-mortar sales by 10 percentage points. That differential spiked to 40 points at the onset of the pandemic and then fell sharply in the following year. We’re of the mind that e-Commerce penetration is likely to head higher from this point forward, and we built a framework that assesses the vulnerability of 60 consumer stocks. Amazon added an average of 20 million square feet to

Summary In our inaugural report we assessed whether the consumer would buckle under pressure or power through. We concluded that the tailwinds are strong enough to enable solid mid-single digit consumption growth in 2022. This report focuses on how that growth might look across the income spectrum with a focus on the low-end consumer. We built a few models to help frame our outlook for the low end. One tracks monthly spending for ~30 categories