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Is Consumer Spending Really a Worry? 5 Smart Picks
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At first glance, March’s consumer spending report only adds to the recent clutch of disappointing economic data coming out of the U.S. economy. Consumer spending remained virtually unchanged over the month of March, improving by less than 0.1%, indicating that the economy’s engine of growth might be cooling down. However, a closer inspection reveals a different story, one which even leads to optimism about the economy’s prospects in the months to come.
This is because real consumption has actually increased, which, along with steady wage gains, bodes well for the economy in the months ahead. Investing in consumer discretionary stocks looks like a smart option at this point.
Real Personal Consumption Rises
In March, real personal consumption expenditure increased by 0.3%. Last month’s gain comes on the back of two months of declines, of 0.1% and 0.3%, in February and March, respectively. Among other positive developments, personal income and disposal personal income both increased by 0.2%. Both these metrics have increased for at least five successive quarters.
These figures, particularly the continuous increase in income levels, suggest that the U.S. economy is ready to emerge from the slowdown which it suffered in the first quarter. Additionally, GDP declined by 0.7% in the first quarter, due to a considerable decline in consumer expenditure. But last Friday’s report also indicated that the economy had gained momentum at the end of the quarter.
Sluggish Inflation Likely to Keep Rates Steady
Another worrying trend in March’s consumer spending report was a decline in the PCE price index, which moved 0.2% lower. The Fed’s preferred gauge of inflation also increased by only 1.8% last month, well February’s level of 2% when it briefly hit the central bank’s target. Core PCE also declined by 0.1% and the Fed is likely to stay away from raising rates at the two-day meeting starting on Tuesday.
According to several economists, the fall in inflation was primarily attributable to unusually higher temperatures across various parts of the U.S. Expenditure on utilities and gasoline declined as a result, leading to price cuts from auto dealers who tried to boost sales after a hectic holiday period.
Another possible cause is the unexpected delay in tax refunds, which cramped disposable incomes. However, strong consumer confidence, rising income levels and an increase in the net worth of households indicate that strong economic fundamentals are still in place. This is likely to lead to higher levels of spending and subsequently a rise in inflation in the months ahead.
Our Choices
The increase in real consumption levels indicates that consumers’ purchasing power continues to be strong. An increase in the savings rate in March, from 5.7% to 5.9%, indicates that consumers only held off spending last month.
Following the receipt of tax refunds, disposable incomes are likely to increase in the second quarter. This is likely to increase discretionary spending, which makes it imperative for you to own stocks likely to gain from this trend. However, picking winning stocks may prove to be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
Central Garden & Pet Company (CENT - Free Report) is a leading producer and marketer of premium and value-oriented products focused toward the lawn & garden and pet supplies markets in the U.S.
Central Garden & Pet has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 11.1% for the current year. Its earnings estimate for the current year has improved by 0.7% over the last 30 days.
Rocky Brands, Inc. (RCKY - Free Report) is a leading designer, manufacturer and marketer of premium quality footwear and apparel.
Rocky Brands has a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 12.5% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nutrisystem, Inc. is a leading provider of weight management products and services.
Nutrisystem has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 38.2% for the current year. Its earnings estimate for the current year has improved by 10% over the last 30 days.
West Marine, Inc. is the largest specialty retailer of recreational and commercial boating supplies and apparel in the U.S.
West Marine has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 34.6% for the current year. Its earnings estimate for the current year has improved by 7.7% over the last 30 days.
Hasbro, Inc. (HAS - Free Report) is engaged in the design, manufacture and marketing of games and toys.
Hasbro has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 9.8% for the current year. Its earnings estimate for the current year has improved by 4.9% over the last 30 days.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
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Is Consumer Spending Really a Worry? 5 Smart Picks
At first glance, March’s consumer spending report only adds to the recent clutch of disappointing economic data coming out of the U.S. economy. Consumer spending remained virtually unchanged over the month of March, improving by less than 0.1%, indicating that the economy’s engine of growth might be cooling down. However, a closer inspection reveals a different story, one which even leads to optimism about the economy’s prospects in the months to come.
This is because real consumption has actually increased, which, along with steady wage gains, bodes well for the economy in the months ahead. Investing in consumer discretionary stocks looks like a smart option at this point.
Real Personal Consumption Rises
In March, real personal consumption expenditure increased by 0.3%. Last month’s gain comes on the back of two months of declines, of 0.1% and 0.3%, in February and March, respectively. Among other positive developments, personal income and disposal personal income both increased by 0.2%. Both these metrics have increased for at least five successive quarters.
These figures, particularly the continuous increase in income levels, suggest that the U.S. economy is ready to emerge from the slowdown which it suffered in the first quarter. Additionally, GDP declined by 0.7% in the first quarter, due to a considerable decline in consumer expenditure. But last Friday’s report also indicated that the economy had gained momentum at the end of the quarter.
Sluggish Inflation Likely to Keep Rates Steady
Another worrying trend in March’s consumer spending report was a decline in the PCE price index, which moved 0.2% lower. The Fed’s preferred gauge of inflation also increased by only 1.8% last month, well February’s level of 2% when it briefly hit the central bank’s target. Core PCE also declined by 0.1% and the Fed is likely to stay away from raising rates at the two-day meeting starting on Tuesday.
According to several economists, the fall in inflation was primarily attributable to unusually higher temperatures across various parts of the U.S. Expenditure on utilities and gasoline declined as a result, leading to price cuts from auto dealers who tried to boost sales after a hectic holiday period.
Another possible cause is the unexpected delay in tax refunds, which cramped disposable incomes. However, strong consumer confidence, rising income levels and an increase in the net worth of households indicate that strong economic fundamentals are still in place. This is likely to lead to higher levels of spending and subsequently a rise in inflation in the months ahead.
Our Choices
The increase in real consumption levels indicates that consumers’ purchasing power continues to be strong. An increase in the savings rate in March, from 5.7% to 5.9%, indicates that consumers only held off spending last month.
Following the receipt of tax refunds, disposable incomes are likely to increase in the second quarter. This is likely to increase discretionary spending, which makes it imperative for you to own stocks likely to gain from this trend. However, picking winning stocks may prove to be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
Central Garden & Pet Company (CENT - Free Report) is a leading producer and marketer of premium and value-oriented products focused toward the lawn & garden and pet supplies markets in the U.S.
Central Garden & Pet has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 11.1% for the current year. Its earnings estimate for the current year has improved by 0.7% over the last 30 days.
Rocky Brands, Inc. (RCKY - Free Report) is a leading designer, manufacturer and marketer of premium quality footwear and apparel.
Rocky Brands has a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 12.5% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nutrisystem, Inc. is a leading provider of weight management products and services.
Nutrisystem has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 38.2% for the current year. Its earnings estimate for the current year has improved by 10% over the last 30 days.
West Marine, Inc. is the largest specialty retailer of recreational and commercial boating supplies and apparel in the U.S.
West Marine has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 34.6% for the current year. Its earnings estimate for the current year has improved by 7.7% over the last 30 days.
Hasbro, Inc. (HAS - Free Report) is engaged in the design, manufacture and marketing of games and toys.
Hasbro has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 9.8% for the current year. Its earnings estimate for the current year has improved by 4.9% over the last 30 days.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>