Inflation is still at multi-year highs, which has compelled the Fed to continue with its aggressive rate hike policy. However, people are spending quite aggressively. Higher demand for goods has so far helped some major sectors brave the inflation. One of the major reasons behind this is a steady jump in personal income.
Higher personal income has resulted in higher spending, which has seen consumer confidence soar over the past couple of months. Also, a rise in personal income has seen people spend more freely on travel, vacations and outdoor entertainment.
Given this situation, investing in consumer discretionary stocks like
Marriott Vacations Worldwide Corporation ( VAC Quick Quote VAC - Free Report) , Hyatt Hotels ( H Quick Quote H - Free Report) , Prestige Consumer Healthcare Inc. ( PBH Quick Quote PBH - Free Report) , InterContinental Hotels Group PLC ( IHG Quick Quote IHG - Free Report) and Target Hospitality Corp. ( TH Quick Quote TH - Free Report) would be ideal. Personal Income, Personal Spending Rise
The Commerce Department said on Sep 30 that consumer spending increased 0.4% in August after a decline of 0.2% in July. The board said that people continued to spend aggressively as the price of gasoline dropped substantially. Although spending was slightly low on goods, people continued to spend aggressively on traveling, vacationing and dining out.
The core Personal Consumption Expenditure (“PCE”) rose 0.3% in August, after dropping 0.1% in July. On a year-over-year basis, PCE rose 6.2% in August. Core PCE, which excluded the volatile energy and food costs, rose 0.6% in August. On a year-over-year basis, core PCE rose 4.9% in August.
Personal income on the other hand jumped 0.3%. Consumer spending accounts for more than two-thirds of U.S. economic activity.
A chunk of the growth in spending was due to increasing utility costs. Prices for commodities rose by 8.6%, while those for services rose by 5% in August on a year-over-year basis. Despite price increases, consumer spending rose in August. Naturally, as income has increased, people have been spending more freely.
Spending Increases Despite High Interest Rates
On Sep 21, the Fed increased its policy interest rate by 75 basis points for the third straight time this year. The Fed also said that it plans another 125-basis point hike in interest rates by the end of this year, which would take the benchmark interest rate to a midpoint of 4.40%, before topping it out at 4.60% in 2023.
Higher interest rates have been pinching the pockets of consumers. Moreover, they are now worried about an economic slowdown. However, consumer confidence has lately been high as they now have more faith in the Fed's approach toward combating rising inflation.
Growing economic optimism appears to have allayed concerns of a recession, a week after the Fed increased interest rates and said that unemployment would peak.
Consumer confidence rose to 108.0 in September, beating analysts’ expectations of 104.5 and higher than August’s reading of 103.6. The jump in September was driven by a drop in gasoline prices and a strong labor market.
The drop in gasoline prices has seen people travel more. They are also spending more on vacations and dining out. This is also driving the pace of spending, which is likely to continue in the near term as personal income continues to grow.
We have picked four stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) that are poised to benefit in the near term. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Marriott Vacations Worldwide Corporation offers vacation ownership, exchange, rental, resort and property management services. As of 2021-end, VAC had more than 120 resorts and 700,000 owners and members in a diverse portfolio of seven vacation ownership brands. Marriott Vacations Worldwide Corporation also has exchange networks and membership programs in more than 3,200 resorts in 90 countries.
Marriott Vacations Worldwide Corporation’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the past 60 days. VAC sports a Zacks Rank #1.
Hyatt Hotels is a leading global hospitality company engaged in the development, ownership, operation, management, franchising and licensing of a portfolio of properties, including hotels, resorts and residential and vacation ownership properties around the world. As of Mar 31, 2022, H’s portfolio included more than 1,150 properties in 71 countries across six continents.
Hyatt Hotels Corporation’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 30 days. H has a Zacks Rank #2.
Prestige Consumer Healthcare Inc. and its subsidiaries develop, manufacture, market, sell and distribute over-the-counter (“OTC”) healthcare and household cleaning products in the United States, Canada, Australia and certain other international markets. PBH provides its products to mass merchandisers as well as drug, food, dollar, convenience, and club stores. Also, Prestige Consumer Healthcare operates through the e-commerce channel.
Prestige Consumer Healthcare’s expected earnings growth rate for the current year is 3.7%. The Zacks Consensus Estimate for current-year earnings has improved 0.40% over the past 60 days. PBHcarries a Zacks Rank #2.
InterContinental Hotels Group PLC offers information and reservations capability on the Internet for InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn hotels, Holiday Inn Express hotels, and Staybridge Suites by Holiday Inn hotels. IHG owns, manages, franchises, and leases hotels across all continents.
InterContinental Hotels Group’s expected earnings growth rate for the current year is 88.4%. The Zacks Consensus Estimate for current-year earnings has improved 9.5% over the past 60 days. IHG has a Zacks Rank #2.
Target Hospitality Corp. ( TH Quick Quote TH - Free Report) , through Target Lodging and Signor Lodging, builds, owns and operates customized housing communities for hospitality solutions, including culinary, catering, concierge, laundry and security services, as well as recreational facilities. TH primarily serves the oil and gas, energy and government sectors. Target Hospitality Corp., formerly known as Platinum Eagle Acquisition Corp., is headquartered in The Woodlands, TX.
Target Hospitality’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 16.1% over the past 60 days. TH has a Zacks Rank #2.