On Apr 30, the Conference Board released U.S. consumer confidence data for the month of April. The metric returned to growth trajectory after a dip in March. The indexes remain at appreciable levels, very close to highs in a decade. The metric indicates that the U.S. economy is likely to sustain its momentum in the ensuing second quarter.
A robust job market, higher consumer spending, low inflation rate and a stable interest rate are likely to increase consumer confidence in the months to come. At this stage, investment in consumer discretionary stocks with a favorable Zacks Rank will be a prudent move.
Strong Consumer Confidence Data in April
For April 2019, the Conference Board's measure of consumer confidence index stands at 129.2 compared with 124.2 in March. April’s reading also came in above the consensus estimate of 125.8. The Present Situation Index, which gauges consumers’ views about current market conditions, climbed from 163 to 168.3.
More importantly, the Expectations Index, which is a measure of the consumers’ short-term (for next six months) outlook for income, business and labor market conditions, surged to 103 from 98.3. Both Present Situation and Expectation indexes currently stand at close to the highest levels in a decade.
GDP Growth to Stay Firm in Second Quarter
Consumer spending rose 0.9% in March, following an increase of 0.1% in February and 0.3% in January. 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 PCE price inflation grew 1.5% in March on a year-over-year basis compared with 1.3% in February. However, core PCE inflation (excluding volatile items like food and energy prices) remained flat in March. Year over year, core PCE inflation grew by 1.6%, way below the Fed’s target rate of 2%.
Last week, the Bureau of Economic Analysis reported that personal consumption grew 1.2% in the first quarter of 2019 resulting in 3.2% growth in GDP. A high rate of consumer spending and low inflation confirms that the economy is in a strong footing for second-quarter growth.
Moreover, the Fed has decided to keep benchmark interest rate unchanged at 2.25-2.5% in 2019. The central bank will also stop quantitative tightening policy since September. A stable interest rate policy bodes well for U.S. consumers.
Additionally, a robust labor market that added 196,000 jobs for the month of March is a major catalyst for the U.S. economy. First-quarter 2019 average job gains were a solid 180,000. The unemployment rate remained at a 50-year low of 3.8%.
Our Top Picks
Strong consumer confidence data indicates that consumer spending is likely to witness robust growth in the coming months. Consequently, adding consumer discretionary stocks to your portfolio makes sense at this point.
We narrowed down our search to five such stocks, each carrying a Zacks Rank #1 (Strong Buy) and having a VGM Score of either A or 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.
CMCSA Corp. CMCSA operates as a media and technology company worldwide. It operates through Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment, Theme Parks, and Sky segments. The stock carries a VGM Score of B. The company has an expected earnings growth rate of 13.3% for the current year. The Zacks Consensus Estimate for the current year has improved 5.9% over the last 30 days. The stock has surged 45% year to date.
Lululemon Athletica Inc. LULU designs, distributes, and retails athletic apparel and accessories for women, men and female youth. It carries a VGM Score of B. The company has an expected earnings growth rate of 22.7% for the current year. The Zacks Consensus Estimate for the current year has improved 7.3% over the last 60 days. The stock has surged 27.9% year to date.
G-III Apparel Group Ltd. GIII designs, sources and markets women's and men's apparel in the United States and internationally. It 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 the current year has improved 5.1% over the last 60 days. The stock has surged 54.7% year to date.
IMAX Corp. IMAX operates as an entertainment technology company that specializes in motion picture technologies and presentations worldwide. It carries a VGM Score of B. The company has an expected earnings growth rate of 22% for the current year. The Zacks Consensus Estimate for the current year has improved 2.8% over the last 60 days. The stock has surged 29.6% year to date.
Select Interior Concepts Inc. SIC installs and distributes interior building products for residential interior design services markets in the United States. It carries a VGM Score of B. The company has an expected earnings growth rate of 1,250% for the current year. The Zacks Consensus Estimate for the current year has improved 4.5% over the last 60 days. The stock has surged 64.8% year to date.
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