American consumers are continuing to rein in spending amid growing concerns over the health of the U.S. economy, putting further pressure on the retail sector. Given the mounting economic uncertainty around interest rates, inflation and a potential looming recession, we’re sticking with retail holdings like TJX Companies and Costco Wholesale that offer both quality and value to shoppers. First-quarter earnings results from retailers this season have shown softer discretionary spending to be the primary headwind facing companies across numerous retail categories. Home-improvement retailer Lowe’s Companies (LOW) reported lower-than-expected sales on do-it-yourself purchases in its fiscal first-quarter earnings. Similarly, Home Depot (HD) reported its largest revenue miss since November 2022 during its first quarter, due to softer demand for bigger-ticket items. Sales at Target (TGT) were muted in the first quarter , while at Walmart (WMT) consumers traded down to lower-priced items and bought fewer discretionary goods. Club holding Foot Locker (FL) delivered disappointing first-quarter results , with the weakening macroeconomic situation putting a dent in CEO Mary Dillon’s turnaround strategy. “The consumer is weaker everywhere,” Jim Cramer said Tuesday. What Jim calls “cracks in the consumer” are the result of the Federal Reserve’s policy of aggressive interest-rate hikes over the past year to curb persistently high inflation. “If the Fed is waiting for the consumer to get weak, stop waiting,” Jim said. On the one hand, a weaker consumer — across most sectors, with the exception so far of travel and leisure — is exactly what the Fed has hoped to achieve through its efforts to cool the economy. Taken together with inflation showing signs of easing in recent months the central bank could be in a position to at least pause rates when it next convenes in June. That, in turn, could boost equities markets, which have been held back by higher rates. But it’s a fine line to walk. If consumer spending declines too precipitously, it could help tip the U.S. economy into recession. And that would, of course, be a negative for markets. So, when it comes to the retail sector in this uncertain economic environment, we’re focused on retailers that offer quality merchandise at attractive prices — Costco Wholesale (COST) and TJX Companies (TJX) being chief among them. TJX — which operates stores like T.J. Maxx and HomeGoods — reported its fiscal 2024 first-quarter earnings last week. While the off-price retailer delivered softer sales, easing costs like freight expenses allowed the company to grow earnings-per-share by 12 % on an annual basis. Overall, TJX delivered a solid quarter as it continued to offer value to budget-conscious consumers by selling high-quality inventory at low prices. Competitor Ross Stores (ROST) also demonstrated resiliency in its recent earnings print with durable sales that were in line with Wall Street’s expectations, even…
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