Consumer Check-In & AI’s Progress

Travis Hoium (0:02)

Is the consumer all right? Motley Fool Hidden Gems Investing starts now.

Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium, joined today by Lou Whiteman and Dan Caplinger. Guys, I think we've got a lot of AI news, there's interest rate news, but I want to start with something that's maybe a little bit more close to home for regular people, and that is, is the consumer all right? Consumers still drive about 70% of the economy. Federal spending data, as Lou keeps reminding me, is not actually all that bad. But you start looking at consumer goods stocks and these earnings reports, and things look a little less bright. Lennar said this week that their new orders were down for new homes, were down 9%, and prices are actually down 30% from a year ago. I know they may be building a little bit different houses, but there's a lot of things to go into that. But that's a pretty big number. Nike's sales were down last fiscal year, and both Hoka and ON reported weaker than expected results and lowered guidance. GM said sales have fallen 6.8% early this year. Escalade sales are down 18%, Tahoe is down 8%, Suburban down 18%.

Lou, it seems like things are a little weaker than we would like in the consumer space.

Dan Boyd (1:21)

Am I reading this right?

Lou Whiteman (1:22)

Well, I don't know how to read this, because for one, you have the whole macro-micro issue. We'll get that in a second, but look at the data you just cited. The GM sales were the first half of 2026 That's not current, okay?

It's not without value, but it's not current. On Holdings, yeah, they aren't doing as great as they were before. On Holdings, it's like 2% of the US shoe market.

Travis Hoium (1:45)

Well, if you want to talk about Nike, they're a big, much bigger percentage than they're doing worse.

Lou Whiteman (1:49)

On Nike too, but yeah, but I haven't seen a lot of barefoot people, so I do think people are still buying shoes.

US home sales, long running issues there. I don't think that is a new, it might be getting worse, but let me give you some counterpoints too. US retail sales were up 1.2% in August. That's the biggest jump in five years. Bank of America credit card data shows household spending up 4.5% year over year. Now, some of that might be inflation. I'm not saying the consumer is healthy, but the point is that they are somehow able to spend more than they did. Labor market remains quietly solid, if not unspectacular.

Always come back to this, but I think it's so important to say, the consumer, we talk about the consumer, but the consumer is not one guy, it's not one family. It is the aggregate of 130 million plus US households. Some of those households are struggling. And yes, I'm guessing some of those households are struggling more than two years ago. And I don't want to be dismissive of that. We are not trending in the right direction. But as long as there is a critical mass among those 130 million households that are business as usual, spending what they spend, the consumer is fine, even with the stresses. So two things can be true. A lot of brands, especially brands that are selling premium products, are finding it harder to sell those products today. Yet, the economy, the consumer, is kind of somehow humming along.

Travis Hoium (3:18)

Dan, one of the reasons that I brought up the names that I did is, Lou has been talking about this K-shaped economy for a while, and a lot of those brands that I talked about are the top of that K. They were the people that are supposed to be doing well, the people who are buying escalates, the people who are buying, you know, and I use the SUVs because that's where the money is made in the auto business, is still those, you know, big, expensive SUVs and trucks.

There's more deals on trucks. I talked about all the SUVs and sales are down. So it seems like if we're have a K-shaped economy and the part of the K that's doing well is not doing nearly as well as it was a year ago, that's something.

Dan Caplinger (3:54)

I agree. But I wonder if we're started to head more towards maybe, I don't know what you'd call it, an E-shaped economy or something like that, where that top end of the K can brace into a couple of different-

Travis Hoium (4:06)

Protect the rights on that E-shaped economy.

Dan Caplinger (4:08)

Couple different legs there though, you know, because I think that you have a decent number of people in the upper middle class who thought that they had secure jobs, thought that they were at- they still are at the upper end of the income spectrum. But they're looking ahead and they're seeing trends. We're going to get to AI later in the show, I think. But they're seeing things that might put that at risk. And I think that in some of those cases, that makes those folks kind of think twice about, okay, yes, things are good now.