Consumers in the United States are spending aggressively despite slowing personal income and sharply increasing interest rates. The Fed has been consistently increasing interest rates since March 2022 but that hasn’t deterred consumers from spending on goods and services.

Higher spending, driven by demand, has been helping the retail sector also. Moreover, consumers’ willingness to spend freely also benefits the consumer discretionary sector. Given this situation, stocks like Alto Ingredients, Inc. (ALTO Quick QuoteALTO - Free Report) , Hilton Grand Vacations Inc. (HGV Quick QuoteHGV - Free Report) , Marriott International, Inc. (MAR Quick QuoteMAR - Free Report) , Royal Caribbean Cruises Ltd. (RCL Quick QuoteRCL - Free Report) and OneSpaWorld Holdings Limited (OSW Quick QuoteOSW - Free Report) are likely to benefit in the near term.

Personal Spending Increases

Personal income increased $45 billion or 0.2% in July, the Bureau of Economic Analysis said on Aug 31. Even a marginal rise in income looks impressive amid persisting inflationary pressure.

However, what’s more interesting is that Americans are spending more than they are earning as personal spending rose a solid 0.8% to $144.6 billion in July. Of these $102.7 billion were spent on services, while $41.9 billion were spent on goods.

Solid consumer spending has also benefited the retail sector. Retail sales rose a solid 0.7% in July. This has so far been the best month for the retail sector since January 2023. Year over year, retail sales grew 3.2% in July.

From May through July, retail sales grew 2.3% on a year-over-year basis.

Understandably, consumers are confident about spending aggressively and are showing resilience despite the Fed continuing with its interest rate hikes. Also, spending has been getting a boost from the personal savings that consumers amassed during the pandemic.

Spending Boosting GDP

Despite inflationary pressures, which have seen the Fed aggressively increase interest rates by 525 basis points since March 2022 to take its benchmark rate to the range of 5.25%-5.5%, consumers continued spending, which has been boosting economic growth.

The U.S.  GDP grew 2.1% in the second quarter, after accelerating 2% in the first quarter, despite growing fears of a recession owing to the aggressive interest rate hikes. Consumer spending, which accounts for the majority of economic activity, grew at an annual rate of 1.6% in the second quarter. This came after a strong performance with a 4.2% annual growth rate in the first three months of the year.

Our Choice

Given this scenario it would be prudent to invest in consumer discretionary stocks. We have narrowed down our search to five such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alto Ingredients is a producer of specialty alcohols and essential ingredients. ALTO is focused on products spanning Health, Home & Beauty, Food & Beverage, Essential Ingredients, and Renewable Fuels.

Alto Ingredients’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 60 days. ALTO presently carries a Zacks Rank #2.

Hilton Grand Vacations is engaged in the hospitality business. HGV markets and operates vacation ownership resorts. Hilton Grand Vacationsalso manages and serves club membership programs, which include Hilton Grand Vacations Club(R) and The Hilton Club(R).

Hilton Grand Vacations’ expected earnings growth rate for the current year is 23.9%. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the past 60 days. HGV currently carries a Zacks Rank #2.

Marriott International is a leading worldwide hospitality company focused on lodging management and franchising, after the spin-off of its timeshare business into a publicly-traded company in November 2011. During the first quarter of 2023, MAR added 79 new properties (11,015 rooms) to its worldwide lodging portfolio. At the end of first-quarter 2023, Marriott International’s development pipeline totaled 3,060 hotels, with approximately 502,000 rooms. Nearly 200,000 rooms were under construction.

Marriott International’s expected earnings growth rate for the current year is 29%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 60 days. MAR has a Zacks Rank #2.

Royal Caribbean Cruises owns and operates three global brands — Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. Additionally, RCL has 50% investment in a joint venture with TUI AG, which operates the TUI Cruises brand. Royal Caribbean Cruises’ cruise brands primarily serve the contemporary, premium and deluxe segments of the cruise vacation industry, which also includes the budget and luxury segments.

Royal Caribbean Cruises’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 27.5% over the past 60 days. RCL currently sports a Zacks Rank #1.

OneSpaWorld Holdings is a provider and innovator in the fields of wellness, beauty, rejuvenation and transformation on cruise ships and land. OSW’s service includes traditional and alternative massage, body and skincare treatment options, ayurvedic treatments, comprehensive hair and nail services, fitness, acupuncture, herbal medicine, pain management, and medi-spa.

OneSpaWorld Holdings’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 15.1% over the past 60 days. OSW presently carries a Zacks Rank #2.