The U.S. economy expanded at a slower pace in the first quarter than estimated earlier according to the second estimate of GDP released by the Department of Commerce. Inventories and consumer spending increased at a slower rate than earlier estimated. This resulted in a slight decline in the headline number.
However, data released recently indicates that growth will pick up sharply in the second quarter. Further, consumer confidence lingered near an 18-year peak in May. This indicates that investing in stocks benefiting from higher consumer spending, the largest component of GDP, still makes sense at this point.
Slower Inventory Growth Offsets Higher Investment
According to the Department of Commerce’s second estimate, U.S. GDP increased at a 2.2% pace in the first quarter. This was marginally below the initial estimate of 2.3% and also lower than the 2.9% pace witnessed in the fourth quarter of 2017.
Meanwhile, fixed investment on items like structures, software and equipment was revised upward to reflect a 6.5% increase from the earlier 4.6%. However, this was offset by softer inventory growth. Fresh inventories were reduced from the initial estimate of $33.1 billion to $20.2 billion.
VIDEO Consumer Spending Slips, Pickup in Q2 Likely
Consumer spending expanded only 1% in the first quarter, less than the earlier estimate of a 1.1% increase. This was the most sluggish rate of growth experienced since 2013. It was also significantly lower than the 4% pace observed in the fourth quarter.
However, signs are rife that GDP will increase in the second quarter. Several economists expect that the pace of growth will exceed 3% during this period. In any case, first-quarter GDP is usually lower than the rest of the year due to issues related to seasonal adjustment.
Similarly, consumer spending is showing signs of picking up in the months ahead. The labor market remains strong with unemployment declining to an 18-year low in April. Retail sales have now increased for two straight months. Additionally, consumer confidence for the month of May came in at 128, lingering near an 18-year high.
Despite the downward revision in estimates for the first quarter, growth is expected to pick up during spring. A bunch of crucial economic reports indicate that consumer spending is also likely to recover in the second quarter.
Investing in consumer discretionary stocks still looks like a smart option at this time. However, picking winning stocks may 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.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see
the complete list of today’s Zacks #1 Rank stocks here. Delta Apparel, Inc. ( DLA - Free Report) is a designer, manufacturer and marketer of a wide range of lifestyle basics and active wear apparel and related accessories.
Delta Apparel has a VGM Score of A. The company’s projected growth rate for the current year is 12.8%. The Zacks Consensus Estimate for the current year has improved by 11.1% over the last 30 days.
Malibu Boats, Inc. ( MBUU - Free Report) operates as a designer, manufacturer and marketer of sport boats primarily in the United States.
Malibu Boats has a VGM Score of A. It has expected earnings growth of 56.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 8% over the last 30 days.
Johnson Outdoors Inc. ( JOUT - Free Report) is a designer, manufacturer and marketer of diving, watercraft, outdoor equipment and marine electronics equipment.
Johnson Outdoors has a VGM Score of B. The company has expected earnings growth of 28.3% for the current year. For the current year, the Zacks Consensus Estimate has improved by 19.8% 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 B. The company has expected earnings growth of 29.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.1% over the last 60 days.
Weight Watchers International, Inc. ( WTW - Free Report) is the largest provider of weight control programs in the world.
Weight Watchers International has a VGM Score of B. Its expected earnings growth for the current year is 73%. For the current year, the Zacks Consensus Estimate has improved by 10.7% over the last 30 days.
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