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American Shoppers Splurge, Keep Economy From Tanking

Tirthankar Chakraborty

Among the U.S. economy’s two major pillars, consumers stood resilient throughout the summer season despite fragile global growth and trade-related concerns. This can be attributed to better-than-expected retail sales in August and the bouncing back of consumer sentiment in September from an almost three-year low. Thus, we can rest assured that households will continue to deliver for the economy.

According to the Commerce Department, sales at U.S. retailers rose 0.4% last month mostly led by motor vehicle and online purchases. Retail sales climbed north after an upwardly revised 0.8% increase in July. By the way, the measure that excludes car dealers, food services, building materials, stores and gasoline stations rose 0.3%, on par with projections. Needless to say, this core retail sales measure is predominantly viewed as a more reliable gauge of underlying consumer demand.

However, many may argue that not everything about the retail sales report has been hunky-dory. Seven of the 13 major categories saw a decline in sales figures, with restaurants seeing their steepest drop in almost a year. Department stores, groceries and apparel retailers also saw a decline in receipts. But, there are plenty of positives. Outlays at automobile and parts dealers went up 1.8% compared to the prior month, the highest since March. In fact, Ward Automotive Group had already shown a 0.9% increase in August unit sales after declining to a three-month low in July.

What’s more, non-store sales that include categories such as online shopping climbed 1.6%. The online category had already posted a gain of 1.7% in July, thanks to Amazon’s 48-hour Prime Day event. Such an event, per Amazon, surpassed sales when compared to the previous Black Friday and Cyber Monday in total. Ironically, the promotion also drove sales of rivals like Walmart and Target.

Buoyed by a resilient labor market and solid income gains, consumers are the primary source of firepower for economic growth amid moribund factory output. As a matter of fact, the latest retail sales report indicates another encouraging quarter of household consumption, which already grew in the April-June period at the fastest pace since 2014.

Tin Quinlan, senior economist at Wells Fargo Securities, rightly pointed out that “at a time when recession risk dominates most economic discussions, the strength of the U.S. consumer is among the more compelling examples of an economy that is still firing on all cylinders.”

Last but not the least, U.S. consumer sentiment rebounded modestly this month. Per the University of Michigan, its consumer sentiment index came in at 92 in September, up from 89.8 in late August. Analysts had expected sentiment to rebound to 91.4. To top it, the current conditions index rose to 106.9 in September from 105.3 in the prior month. The index of expectations too rose to 82.4 from 79.9 in August.

Things Looking Up for Consumer Stocks

With retail sales picking up and consumers feeling confident about their personal finances, consumer discretionary companies in particular are well poised to grow in the near term. It’s worth pointing out that upbeat consumer sentiment number is a significant reading since it has been, historically, good at predicting consumer spending for the next three to six months. We have, thus, selected five consumer stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

America's Car-Mart, Inc. CRMT operates as an automotive retailer in the United States. The company primarily sells older model used vehicles and provides financing for its customers. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 5.2% in the last 60 days. The company’s expected earnings growth rate for the current year is 19.4% compared with the Automotive - Retail and Whole Sales industry’s projected rally of 11.5%.

Asbury Automotive Group, Inc. ABG operates as an automotive retailer in the United States. The company primarily sells older model used vehicles and provides financing for its customers. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 3.3% in the last 60 days. The company’s expected earnings growth rate for the current quarter is 7.7% against the Automotive - Retail and Whole Sales industry’s estimated decline of 6.5%.

Stamps.com Inc. STMP provides Internet-based mailing and shipping solutions in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 13.2% in the last 60 days. The company’s expected earnings growth rate for the past five years have been 36.9% against the Internet - Commerce industry’s rally of 11.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

RH RH, together with its subsidiaries, operates as a retailer in the home furnishings. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 18.9% in the last 60 days. The company’s expected earnings growth rate for the current year is 25.3% compared with the Retail - Home Furnishings industry’s projected rally of 5.1%.

Casey's General Stores, Inc. CASY operates convenience stores under the Casey's and Casey's General Store names. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 6.1% in the last 60 days. The company, which is part of the Retail - Convenience Stores, is expected to notch earnings growth of 15.2% and 12.9% for the current quarter and year, respectively.

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