Yahoo Finance Live’s Seana Smith breaks down the driving factors behind consumer spending amid rising inflation. (Disclosure: Apollo Global Management owns Yahoo.)

Video Transcript

[AUDIO LOGO]

BRAD SMITH: Switching gears here, a slew of retailers are set to report quarterly results this week. With that in mind, today's Call of the Day, it focuses on the consumer. And for that, let's get to Yahoo Finance's Seana Smith joining us here this morning. Seana, take us into it.

SEANA SMITH: Hey there, guys. Lots of debate about how strong the consumer is right now. So I wanted to draw attention to one of the notes that caught my eye out this morning. This one is from Torsten Slok of Apollo. Full disclosure, Apollo is a parent company of Yahoo Finance.

But Slok took a good look at the consumer as we're getting the results from Walmart, from Home Depot. His note was out ahead of those results. But we of course, we are going to be getting a number of results over the next week or so. So let's talk about what we are seeing.

Despite the high inflation, fears of a looming recession, Slok is making the case that the consumer remains strong. Spending is not slowing down. So Slok saying that strength is because of four factors. Let's go through them.

Consumer spending on experiences, something that we've been talking about now for quite some time, also robust wage growth, robust employment growth. And taking a look at the employment picture right now, total employment is now 2.6 million jobs above February 2020 levels, as well as excess savings and also some of that wealth being driven by high stock prices too.

And here's what people are spending on. It's all about experiences, about that services sector making up a bigger chunk of spending, something that we have been talking about now and is highlighted in this chart here just in terms of the flip that we saw at the end of last year. Many economists expecting that trend to continue here. Spending on services here remains very strong.

And looking ahead, net worth has also held on. Despite a small dip, it's not far from those record highs. Consumer confidence, well, it's been on a bit of a roller coaster of economic emotion, we might say. It's still solid, ticking up in the final months of 2022. Consumer sentiment, that has also rebounded.

You can see it here across income levels. So the bottom 33%, middle 33%, and top 33% of income levels, consumer sentiment trending in the right direction here.

One area of note though, is where we are seeing some weakness, a slowdown in sales of furniture and electronics and appliances. Slok attributing that to many of those items requiring financing. We're seeing that in this chart here. And it's also reflected in what we just heard from Walmart this morning. Their electronics category was experiencing some softness here in the most recent quarter.