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Strong Consumer Spending Allays Recessionary Fears: 5 Picks

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A series of reports on the U.S. economy released on Aug 15 diminish chances of a recession in the near term. The previous day, Wall Street routed after the bond market signaled at an impending recession after inversion of the main treasury yield curve. Meanwhile, reports of robust consumer-centric data and mixed data in the business front bolstered market participant’s confidence to some extent.

Notably, consumer spending constitutes around 70% of the U.S. GDP while business spending generates nearly 12%. Therefore, strong consumer spending indicates that the U.S. economy, which is currently in its record 11th year of expansion, will maintain momentum.

Robust Consumer-Centric Data

On Aug 15, the Department of Commerce reported a 0.7% jump in retail sales in July compared with 0.3% in June and the consensus estimate of 0.2%. Online retailers, grocery stores, clothing retailers, restaurants and electronics and appliance stores witnessed sold gains. Notably, online retail sales rose 2.8%.

Moreover, core retail sales (excluding sales at auto dealers and gasoline stations) increased 1% in July, surpassing June’s rise of 0.3% and the consensus estimate of 0.4%.

On Jul 31, the Conference Board's measure of consumer confidence index for July skyrocketed to 135.7 compared with 124.3 in June. In addition, a healthy labor market with 164,000 job additions in July, and a 50-year low unemployment rate of 3.7% boosted consumer confidence.     

Meanwhile, on Aug 15, the Department of Labor reported that U.S. productivity (output per hour work) increased 2.3% in the second quarter of 2019. While the figure lagged the first quarter’s increase of 3.5%, it surpassed the consensus estimate of growth of 1.5%. Higher productivity will enable producers to raise workers’ pay without hiking the price of finished products. Consequently, higher wage will benefit workers raising their level of living.  

Furthermore, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), which measures builder confidence for single-family homes, increased by 1 point to 66 in August from July. The increase in builder’s confidence is mainly due to the drop of the 30-year mortgage rate to 3.6% from 4.1% over the past four months.

Mixed Business Data

The Federal Reserve reported that industrial production in July fell 0.2% against a gain of 0.2% in June. The consensus estimate was for a gain of 0.1%. The metric declined in two out of the past four months. Year over year, industrial production grew just 0.5%. Moreover, capacity utilization declined to 77.5% in July from 77.8% in June, reflecting the lowest rate since October 2017.

However, the New York Empire State Manufacturing Index increased to a reading of 4.8 in August from 4.3 in July. Notably, 42.6% respondents were expecting strong business prospects while 16.9% anticipated weakness.

Similarly, the Philadelphia business conditions index read 16.8 for August. Although the index fell below July’s metric of 21.8, the sub-index for new orders increased by 7 points. Moreover, the metrics for unfilled orders and delivery times were in the positive territory, marking a solid pace of business activity.

Our Top Picks

At this stage, we have narrowed down our search to five retail stocks with either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Moreover, these stocks performed better than the broader market in the past six months and still have some upside left.

Boot Barn Holdings Inc. (BOOT - Free Report) is a lifestyle retail chain, which operates specialty retail stores in the United States. Its specialty retail stores offer western and work-related footwear, apparel, and accessories for men, women, and kids. It sports a Zacks Rank #1.

The company has expected earnings growth of 20.7% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 7.9% north over the last 60 days. The stock has gained 5.2% in the past six months.



Chuy's Holdings Inc. (CHUY - Free Report) owns and operates full-service restaurants serving a distinct menu of authentic Mexican food in the United States. It sports a Zacks Rank #1.

The company has expected earnings growth of 8% for the current year. The Zacks Consensus Estimate for current-year earnings has risen 3.3% over the last 60 days. The stock has climbed 9.1% in the past six months.



Best Buy Co. Inc. (BBY - Free Report) operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company operates through two segments, Domestic and International. It carries a Zacks Rank #2.

The company has expected earnings growth of 8.1% for the current year. The Zacks Consensus Estimate for current-year earnings has climbed 0.3% over the last 60 days. The stock has rallied 6.2% in the past six months.



Burlington Stores Inc. (BURL - Free Report) operates as a retailer of branded apparel products in the United States. It offers women's ready-to-wear apparel, accessories, footwear, menswear, youth apparel, coats, toys, and gifts, as well as baby, home and beauty products. It carries a Zacks Rank #2.

The company has expected earnings growth of 8.9% for the current year. The Zacks Consensus Estimate for current-year earnings has risen 0.1% over the last 60 days. The stock has gained 3.5% in the past six months.



Casey's General Stores Inc. (CASY - Free Report) operates convenience stores under the names Casey's and Casey's General Store. It also operates two stores under the name Tobacco City, selling primarily tobacco products, and one grocery store. It carries a Zacks Rank #2.

The company has expected earnings growth of 6.9% for the current year. The Zacks Consensus Estimate for current-year earnings has risen 1.7% over the last 60 days. The stock has jumped 23.1% in the past six months.



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