The U.S. economy is set to witness the longest-ever expansion later this summer. Despite this, the economy is showing no signs of slowing as the first-quarter 2019 GDP grew at an impressive 3.2%. The labor market is firing on all cylinders with 103 consecutive months of job additions and a record-low unemployment level.
In addition to a robust labor market, muted inflation, higher consumer and business spending, and stable interest rates are likely to boost the economy going forward. At this stage, investment in stocks with a favorable Zacks Rank and strong growth potential will be prudent.
Robust Labor Market
On May 3, the Department of Labor reported that the U.S. economy added 263,000 jobs in April, significantly higher than the consensus estimate of 189,000. Year to date, job gains came in at an impressive 205,000 an average per month.
Unemployment fell to 3.6% compared with the consensus estimate of 3.8%. This marks the lowest level of unemployment rate since December 1969. The number of unemployed people decreased 387,000 in April to stand at 5.8 million. The real unemployment rate, which includes those who have quit looking for better jobs as well as the underemployed, remained flat at 7.3% since February.
Higher Consumer and Business Spending
Consumer spending rose 0.9% in March, the highest in nine and half years. The metric is highly important as it constitutes two-third of U.S. GDP. Consumer spending was up 2.9% year over year in March. The Bureau of Economic Analysis reported that personal consumption grew 1.2% in the first quarter of 2019, pushing the GDP growth to 3.2%.
Besides consumer spending, business spending is also expected to remain firm. The core durable goods orders in March (excluding aircraft) -- a closely watched proxy for business spending plans – rose 1.3%, its highest in eight months.
The PCE price inflation grew by 0.2% in March. Year over year, PCE price inflation grew 1.5% in March. However, the core PCE price inflation (excluding volatile items like food and energy prices) remained flat in March. Year over year, core PCE price inflation grew by 1.6%, way below the Fed’s target rate of 2%. Notably, core PCE deflator is the Fed's favorite gauge of measuring inflation.
Moreover, average hourly wage rate in April, increased 0.2% but fell below the consensus estimate of an increase of 0.3%. Year over year, average hourly wage gains remained flat at 3.2%. Lower-than-expected growth in wage rate is likely to keep inflation under control in the near term.
Stable Interest Rate
Last week, the Fed stated that the majority of its members have decided to stick to the central bank’s March decision of keeping the benchmark interest rate fixed within its existing range of 2.25-2.5% for the rest of 2019.
Despite a strong U.S. economy, the Fed is not going to raise rate due to concerns about global economic slowdown, the contagion effect of which may disturb the U.S. economy. Meanwhile, the central bank denied any rate cut as it thinks the recent benign inflation is transitory. Inflation will likely catch up with the Fed's 2% target rate in the rest of 2019.
Our Top Picks
The four economic variables mentioned above are likely to act as near-term catalysts for the U.S. economy. Consequently, investment in stocks with strong growth potential in 2019 will be lucrative. We have narrowed down our search to five such stocks with a Zacks Rank #1 (Strong Buy) and a VGM Score of A and B. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows price performance of our five picks year to date.
Talos Energy Inc. TALO is an independent oil exploration and production company focusing on the oil exploration and production in the United States Gulf of Mexico and offshore Mexico. The stock carries a VGM Score of A. The company has an expected earnings growth rate of 12.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 47.1% over the last 30 days.
Lindblad Expeditions Holdings Inc. LIND is an expedition travel company. It produce marine expedition programs and promotes conservation and sustainable tourism. The stock carries a VGM Score of B. The company has an expected earnings growth rate of 95.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.8% over the last 30 days.
Enova International Inc. ENVA is a provider of online financial services. It offers loans to customers in the United States and in the United Kingdom, Australia and Canada. The stock carries a VGM Score of A. The company has an expected earnings growth rate of 27.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.1% over the last 30 days.
Columbia Sportswear Co. COLM designs, sources, markets, and distributes outdoor and active lifestyle apparel, footwear and accessories in the United States, Latin America, the Asia Pacific, Europe, the Middle East and Africa, and Canada. The stock carries a VGM Score of B. The company has an expected earnings growth rate of 13.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the last 30 days.
G-III Apparel Group Ltd. GIII designs, sources and markets women's and men's apparel in the United States and internationally. The stock carries a VGM Score of A. The company has an expected earnings growth rate of 15.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.5% over the last 60 days.
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