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Cramer: Analysts have been 'dead wrong' about retail performance

Carmin Chappell
  • Jim Cramer thinks that more attention should be placed on the state of the U.S. retail industry rather than manufacturing.
  • The "Mad Money" host listed the top three areas where Wall Street analysts have underestimated the retail sector's strong performance.

While the state of U.S. manufacturing has been in the spotlight under the Trump administration, CNBC's Jim Cramer thinks that this attention is misplaced.

"Two thirds of our economy is based on consumer spending," the " Mad Money " host said. "In other words, we spend far too much time worrying about our trading partners and far too little time talking about what our economy is really about: shopping for goods and services."

Cramer pointed to several retail names that have beat earnings expectations in recent weeks, including Target TGT , Lowe's LOW and Kohl's KSS . He believes that Wall Street analysts have been "dead wrong" in their evaluation of the retail sector, which has led to such large discrepancies between earnings estimates and reality.

Here are Cramer's three main areas where analysts have missed the mark on retail:

1. Housing

Cramer believes that analysts conflated a lack of home-buying activity with a lack of spending within the industry overall.

"The refurbishing and renovation business is off the charts," Cramer said. Although people may not be buying homes at the same rate as in the past, Cramer pointed to Home Depot HD and Walmart WMT 's strong performance as evidence that people are still spending money on their existing homes.

2. Amazon

Amazon AMZN , or the "Death Star" as Cramer refers to the company, hasn't overtaken traditional retailers like analysts expected, the "Mad Money" host said.

"Amazon's purchase of Whole Foods is starting to look like a big fake out," as evidenced by by the recent bump in Kroger's stock, Cramer said.

Discounted and off-price retailers, such as Walmart and Burlington, also haven't suffered due to Amazon. "We have a red-hot job market, the consumer's feeling fabulous, a lot of people just got a tax cut. In this environment, Amazon can only crush the retailers that are already hobbled," Cramer said.

3. Millennials

Cramer believes that millennials are the "most misunderstood cohort" when it comes to predicting consumer spending.

As an example, Target reported second-quarter earnings on Wednesday that beat Wall Street's expectations, bolstered by growth in its home category. "Millennials love to fix up their apartments. That's driving the incredible growth," said Cramer.

Cramer's bottom line

Consumer spending decisions "themes are the real narrative that helps you make money, not the Fed, not the ten year, not the inverted yield curve, not President Xi, not soybeans, not the sock tariffs, or the corrupt Facebook FB pages," Cramer concluded. "If you want to understand this market, you need to worry less about the trees of trade and focus more on the forest of consumer spending."

Disclosure: Cramer's charitable trust owns shares of Amazon and Facebook.

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