Americans haven’t been this confident about the economy in 18 years. Consumers’ assessment of current conditions improved and expectations about the future strengthened, indicating a record low jobless rate, healthy income and sturdy economic growth.
On perked up Americans, things have been looking up for consumer stocks. Stocks of consumer discretionary companies are poised to grow on signs of renewed consumer spending.
Confidence in American Economy Highest inNearly 18 Years
According to the Conference Board, the consumer confidence index climbed to 133.4 in August from a revised 127.9 in July. The key economic indicator that measures attitudes on future economic prospects reached the highest level since October 2000 and surpassed the post-recession high of 130 scaled this February. In fact, the only other period when consumer sentiment was higher was in the Internet-fueled boom of 1997 to 2000. That’s primarily based on the official monthly reading, which dates back to 1977.
People’s confidence in the present situations improved from 166.1 last month to 172.2 this month, the highest level since 2000. The future expectations index also increased from 102.4 to 107.6. Lynn Franco, director of economic indicators at the Conference Board, added that “expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018.”
What Drove the Confidence?
Consumers’ optimism was largely driven by strength in the labor market. The jobless rate dropped to 3.9% in July. This is the eighth time that the unemployment rate has fallen below the 4% mark since 1970. The current unemployment rate is now at a nearly two-decade low. The real unemployment rate, also known as U6, fell to 7.5% from 7.6%. The U6 now stands at a level lower than it was during the 2007-2009 recession.
The U.S. economy added 157,000 new jobs during the same period and has risen for 94 successive months, the longest stretch on record. The economy, at the same time, created 59,000 more jobs in May and June than earlier reported. Thus, the average gains for the three-month period came in a solid 224,000.
Wages and salaries already grew in the second quarter at the fastest pace in almost a decade, while the overall economic output expanded at a 4.1% annual rate in the said quarter, the fastest in almost four years. Perhaps a better reading of economic strength that excludes trade and inventories rose a solid 3.9% in the second quarter.
Why Does Consumer Confidence Matter?
Such a record consumer confidence number is a significant reading since it has been, historically, good at predicting consumer spending for the next three to six months. The more the confidence households generate, the more will they spend. Notably, consumer spending accounts for roughly 70% of the U.S. economy, which isn’t a nominal number.
These numbers influence companies’ production schedule, particularly big-ticket items like cars and appliances. In fact, the consumer discretionary sector is mostly affected as spending plays a major role in determining revenues. Automobile stocks often track these numbers and so do appliance manufacturers, retailers, consumer discretionary manufacturers, big-ticket entertainment providers, jewelry sellers and cruise line operators, to name a few.
5 Top Winners
Since the aforementioned sector is positioned to benefit from this stellar reading on confidence level, picking stocks from the same will be a smart move.
We have, thus, selected five consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also boast of a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Libbey Inc. LBY designs, produces, and sells tableware and other products. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has soared 18.9% in the last 60 days. The company’s projected growth rate for the current year is 388.9%, while the Household Appliances industry is projected to rise 7.2%.
Rent-A-Center, Inc. RCII is focused on improving the quality of life for its customers by providing them with the opportunity to obtain ownership of high-quality, durable products such as consumer electronics, appliances, computers, furniture, and accessories. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has jumped more than 100% in the last 90 days. The company’s projected growth rate for the current quarter is 280%, while the Consumer Services - Miscellaneous industry is expected to rise 22.9%.
Rocky Brands, Inc. RCKY designs, manufactures, and markets footwear and apparel. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has surged 13.3% in the last 60 days. The company’s projected growth rate for the current year is 46.6%, while the Shoes and Retail Apparel industry is estimated to rise 21.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Callaway Golf Company ELY designs, manufactures, and sells golf clubs, golf balls, golf bags, and other golf-related accessories. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has risen 23.5% in the last 60 days. The company’s projected growth rate for the current year is 88.7%, while the Leisure and Recreation Products industry is projected to rise 35.1%.
Johnson Outdoors Inc. JOUT designs, manufactures, and markets outdoor equipment, diving, watercraft, and marine electronics products. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has jumped 11.4% in the last 60 days. The company’s projected growth rate for the current year is 46.4%, while the Leisure and Recreation Products industry is expected to rise 35.1%.
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