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U.S. Apparel Spending Highest Since 2005: 4 Picks

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Increased spending by Americans on apparels in the last quarter not only boosted the country’s quarterly GDP but also resulted in a bump in sales for apparel retailers. For the record, apparel spending in the last quarter surged to its best level in the last 13 years.

Such developments indicate that apparel retailers are on a solid footing. Further, as the holiday season approaches, retail sales, particularly on clothes is largely expected to rise further. Finally, consumer confidence is at an 18-year high. Under such circumstances, investing in apparel stocks seems prudent.

Apparel Spending Highest in the Last 13 Years

Per the Commerce Department’s GDP data released on Oct 26, consumer spending on clothing and footwear rose 11.7% year over year last quarter. This marked its biggest increase since 2005. Moreover, this helped boost consumption of non-durable goods to its fastest pace in about five years. Notably, apparel spending accounts for about 3% of consumer spending.

Such healthy developments indicate that the upcoming holiday season is set to witness record-shattering holiday shopping. A robust labor market, higher wages and soaring levels of consumer confidence are encouraging households to spend more.

Americans’ Spending on Clothes to Nudge Up

Deloitte expects that the average household spending to increase 25% from last year to $1,536 this holiday season. Further, the National Retail Federation (NRF) forecast on Oct 3 that retail sales in the months on November and December would grow by 4.8% from 2017. This estimate also beats the five-year average of 3.9% in the period.

The NRF also expects that consumers would spend $1,007.24 on average, reflecting an increase of 4.1% from last year. Per a survey, clothing would be the second-most popular gift request this holiday season. For the 12th year on the trot, gift cards remained the most demanded gift request with 60% of the respondents in favor of it. About 53% of those surveyed stated that they preferred to receive clothes as gifts.

Consumer Confidence at 18-Year High

U.S. consumer confidence soared to its highest in 18 years in October, per the Conference Board, a business research organization. The consumer confidence index climbed to 137.9 from 135.3 in September. Economists had expected the consumer index to slip to 134.9 in the month.

Nonetheless, the key economic indicator that measures attitude on economic prospects registered its best reading since the fall of 2000 and is not too far from the all-time high of 144.7 reached that year.

4 Best Choices

A robust labor market, steadily rising wages and strong household finances resulted in a surge in consumer spending last quarter. Further, clothing and apparels remain the preferred gift items ahead of what is expected to be a record-breaking holiday shopping season.

In this context, we have selected four stocks that are expected to gain from these factors. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lululemon Athletica Inc. (LULU - Free Report) is a designer, distributor and retailer of athletic apparel and accessories for women, men and female youth.

The company sports a Zacks Rank #1 and is based out of Vancouver, Canada. The expected earnings growth rate for the current year is 38.13%. The Zacks Consensus Estimate for the current year has improved 2.3% over the past 60 days.

Nordstrom, Inc. (JWN - Free Report) is a provider of apparel, shoes, cosmetics, and accessories for women, men, young adults as well as children.

This Zacks Rank #2 company is based out of Seattle, WA. The expected earnings growth rate for the current year is 20.51%. The Zacks Consensus Estimate for the current year has improved 2.3% over the past 60 days.

Under Armour, Inc. (UAA - Free Report) is a developer and distributor of branded performance apparel, footwear and accessories.

The company carries a Zacks Rank #2 and is based out of Baltimore, MD. The Zacks Consensus Estimate for the current year has improved 5.9% over the past 60 days.

Express, Inc. (EXPR - Free Report) is a specialty retailer of women's and men's apparel in the United States.  The company operates retail outlets in high-traffic shopping malls, lifestyle centers and street locations across the United States.

This Zacks Rank #1 company is based out of Seattle, WA. The expected earnings growth rate for the current year is 29.86%. The Zacks Consensus Estimate for the current year has improved 2.2% over the past 60 days.

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