U.S. shoppers took to shopping malls and auto dealerships in May as states are gradually easing restrictions on business activity that were put in place to curb the spread of the novel coronavirus.

 

Sales at U.S. retailers that measure purchases at stores, restaurants and online, rose 17.7% last month, the biggest monthly jump ever. May’s retail sales figure topped the record 6.7% jump in October 2001, a month after the 9/11 terrorist attack, and easily surpassed analysts’ expectations of an 8.5% increase. Meanwhile, April’s plunge in retail sales was revised to be a little more moderate than previously reported (-14.7% versus -16.4%).

 

Sales at auto dealers, which mostly generate one-fifth of all retail outlays, surged 44%. Excluding motor vehicles, retail sales still rose a healthy 12.4%. And clothing and accessories stores registered the biggest jump in sales, up 188% while book stores, sales at sporting goods and musical instrument stores rose 88.2%.

 

Sales also increased almost 13% at gas stations, indicating Americans are hitting the road and visiting their preferred stores. Bars and restaurants that bore the brunt of the shutdown measures in March and April also saw receipts increase 29% in May.

 

Last but not the least, Internet retailers, one of the few bright spots amid the pandemic, recorded a 9% gain in sales. But grocery sales somehow managed to record a meager gain of 1.3% in sales following a record spike of 14.4% in April.

 

So, what drove retail sales? There are good reasons for the rebound in retail sales. It’s absolutely clear that fiscal aid in the form of stimulus checks, extra jobless benefits and contributions to salaries paid by small business houses have given Americans the wherewithal to spend at shopping outlets. Notably, the extra $600 per week in unemployment benefit has given households the required income and confidence to spend.

 

Moreover, monetary support in the form of a low interest rate environment also lifted shoppers’ spirits. The Fed had trimmed the benchmark federal funds rate a full percentage point to a range of zero to 0.25% in order to pump cash into the financial system and help banks provide more loans to households.

 

It’s worth pointing out that this sharp rebound in retail sales is a telltale sign that the American economy is headed for a V-shaped recovery. This is because retail sales account for 42% of consumer spending, which in turn is nearly 70% of total gross domestic product (GDP). So, retail sales account for just under a third of GDP and May’s bounce back will invariably lead to an upward revision of second-quarter GDP.

 

 

Given the positives, retailers are set to witness a strong rally. To top it, American consumers are confident about their well-being, and that’s a bonanza for retailers as well. According to the Conference Board, the consumer confidence index went up to 86.6 in May from a revised 85.7 in April. At the same time, the index that measures how Americans feel about their income, business, economic and labor market conditions in the next six months, or the so-called future expectations index, edged up to 96.9 from 94.3.

 

Hence, it will be prudent to invest in five of the best retail stocks. Such stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy).

 

Asbury Automotive Group, Inc. (ABG Quick QuoteABG - Free Report) is one of the largest automotive retailers. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 8.7% over the past 30 days. The company’s expected earnings growth rate for the next five years is 18.5%.

 

The Buckle, Inc. (BKE Quick QuoteBKE - Free Report) retails casual apparel, footwear, and accessories for young men and women in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-quarter earnings has moved up more than 100% over the past 30 days. The company’s expected earnings growth rate for the next year is 39.8%.

 

Sportsmans Warehouse Holdings, Inc. (SPWH Quick QuoteSPWH - Free Report) is an outdoor sporting goods retailer. The company's stores also provide clothing products, footwear products and optics, electronics, and accessories. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved 20.3% north over the past 60 days. The company’s expected earnings growth rate for the current year is 63.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Papa John's International, Inc. (PZZA Quick QuotePZZA - Free Report) operates and franchises pizza delivery and carryout restaurants under the Papa John's trademark in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 13.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 26.5%.

 

eBay Inc. (EBAY Quick QuoteEBAY - Free Report) operates as an online shopping site that allows visitors to browse through available products listed for sale or auction through each company's online storefront. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has climbed 14.6% over the past 60 days. The company’s expected earnings growth rate for the current year is 21.9%.

 

 

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