After a feeble start to the year, Americans spent more in the spring driving the U.S. economy beyond the $19 trillion mark for the first time. Real gross domestic product (GDP) rebounded in the second quarter and more than doubled from the first quarter. Pick-up in consumer spending and an uptick in business investment in software, research and equipment boosted economic growth. Consumer outlays in particular improved on a steady job market and healthier household finances. Hence, it seems judicious to invest in areas where consumers have led the way.
US Economy Strengthens under Trump
According to the US Bureau of Economic Analysis, US GDP expanded to $19.2 trillion at the end of the second quarter. The figure was at around $19 trillion at the close of the first quarter, while at the end of last year it was $18.9 trillion. Under Trump, the U.S. economy grew more than $300 billion in just two quarters. Conversely, at the end of the first two quarters under President Obama, U.S. GDP had contracted. At the end of Obama’s first quarter in office, US GDP had shrunk to $14.4 trillion and then to $14.3 trillion at the close of the second quarter.
GDP is the most comprehensive economic statistics and is used by the White House to prepare the Federal Budget. And the official scoreboard for the economy grew at an annual rate of 2.6% in the second quarter, almost double the downwardly revised 1.2% pace of growth in the first quarter. This indicated that the early slowdown was mostly due to seasonal factors like poor weather and late tax refunds.
Consumer Spending Drives GDP to New Highs
A rebound in consumer spending boosted overall economic growth. Consumer outlays grew 2.8% in the second quarter as Americans spent more on healthcare, groceries and clothes. Spending rebounded in the last quarter, buoyed by an uptick in household finances. Disposable income adjusted for inflation saw the best back-to-back quarters this year since the first half of 2015.
Consumer spending was also driven by the strongest labor market in years. The U.S. added 16.6 million new jobs since 2010 to push the unemployment rate down to nearly a 16-year low of 4.4%. In fact, the U.S. job market roared back to life in June, with a better-than-expected 222,000 job additions in the month. Payroll in May and April was revised higher to 152,000 and 207,000, respectively.
Gad Levanon, chief economist North America, for the Conference Board said that “the strong job growth in June and the upward revisions for May and April suggest that the concerns about a major slowdown in job growth were premature”. Employment gains have averaged 180,000 per month this year and several economists believe that the economy might need to add only 100,000 jobs on a regular basis to maintain growth levels.
Business Investments Ramp Up
Companies, in the meanwhile, increased investments in equipment like computers, which rose at a rate of 8.2%, the highest in almost two years. This also highlights the optimism among companies over demand in domestic and overseas markets.
Among other bright spots, nonresidential fixed investment that includes structures and intellectual properties contributed 0.64 percentage points to growth. Government spending also increased at a clip of 0.7%, adding 0.12 point to growth. But, national defense spending and residential investments, to name a few, saw declining investments in the said quarter. Nevertheless, the economy continues to be in good shape and has expanded for eight straight quarters since the recession.
5 Solid Choices
As consumers raises their spending on healthcare, groceries and garments, investing in stocks from such areas seems a prudent choice. Significant increase in expenditure on software, research and development also calls for investing in such a space. We have, thus, selected five solid stocks from the aforesaid areas that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and also 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.
First American Financial Corp (FAF - Free Report) is engaged in the business of providing financial services. The company operates through the title insurance and services segment, and specialty insurance segment. First American Financial has a Zacks Rank #1 and a VGM Score of ‘B’. The Zacks Consensus Estimate for current year earnings advanced 4.3% over the last 60 days. The company is expected to gain 6.2% this year, higher than the industry’s projected gain of 0.2%. The company has yielded a solid return of 33.7% on a year-to-date basis.
Manulife Financial Corporation (MFC - Free Report) provides financial advice, insurance, and wealth and asset management solutions for individuals, groups, and institutions. The company has a Zacks Rank #2 and a VGM Score of ‘B’. The Zacks Consensus Estimate for its year earnings increased 2.5% over the last 60 days. The company is expected to register a solid gain of 11.1% this year. It has already given a return of 14.7% on a year-to-date basis.
Wal-Mart Stores Inc (WMT - Free Report) is engaged in the operation of retail, wholesale and other units in various formats around the world. The company has a Zacks Rank #2 and a VGM Score of ‘A’. The Zacks Consensus Estimate for current year earnings improved 0.2% over the last 60 days. The company is expected to gain 0.9% this year, in contrast to the industry’s projected decline of 4.4%. Wal-Mart has outperformed the industry on a year-to-date basis (+15.5% vs +10.3%).
J.Jill Inc (JILL - Free Report) operates as a specialty retailer in the women’s apparel industry. J.Jill is a women’s apparel brand focused on customer in the 40-65 age segment. J.Jill has a Zacks Rank #1 and a VGM Score of ‘B’. The Zacks Consensus Estimate for its current year earnings soared 7.6% over the last 60 days. The company is expected to gain 24.6% this year; in contrast the industry is projected to decline 5.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Alps Electric Co Ltd (APELY - Free Report) engages in the development, manufacture, marketing, and sale of electronic components worldwide, including the U.S. The company has a Zacks Rank #1 and a VGM Score of ‘A’. The Zacks Consensus Estimate for current year earnings rose 12.5% over the last 30 days. The company has returned 16.5% this year, while the same for next year is projected at 12.3%.
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