U.S. economic growth was stronger in spring than expected, mostly backed by higher business investment and government spending. This marks the economy’s best performance in almost four years.
Consumer spending remained strong in the said period, even though it was not as much as expected initially. Healthy job creation, rising income andincentives in the form of tax cuts are giving consumers all the reasons to splurge. Hence, it seems judicious to invest in areas where business houses, government andconsumers lead the way.
US Economy Sees Best Stretch in Nearly 4 Years
According to the Commerce Department, gross domestic product (GDP) increased at an annualized rate of 4.2% in the April-June quarter. This was slightly higher than the initial 4.1% read and also the strongest since a 4.3% annual gain in the third quarter of 2014. Second-quarter growth showed a sharp improvement from 2.2% in the January-March period and 2.9% from the second quarter of last year, added the Bureau of Economic Analysis.
On the whole, the economy expanded 3.2% in the first half of this year and is on track to hit the Trump administration’s annual growth target of 3%. If that happens, it would be the best yearly performance since 2005, two years before the Great Recession. After all, growth has remained sub-par since recoverybegan in mid-2009, with annual gains averaging just 2.2%.
Gross domestic income (GDI), an alternative measure of economic growth, also increased at a 1.8% annualized rate in the second quarter. Thus, the average of GDP and GDI, also known as the gross domestic output and considered to be a better measure of economic activity, expanded at an encouraging rate of 3% in the April-June quarter.
Business Investments Rise, Consumer Outlays Still Strong
Business investments were healthy, contributing significantly toward overall economic growth. Companies increased investments on software and equipment, which was revised up to 0.23% growth from an earlier 0.12%. Another bright spot, government spending, advanced at a clip of 2.3%, instead of an initial 2.1%, largely reflecting higher outlays on military and defense systems.
Growth in consumer spending, which accounts for almost 70% of US economic activity, was lowered to 3.8% in the second quarter from a previous projected 4%. But, consumer outlays remained quite strong in the second quarter compared to the prior quarter, when spending only increased 0.5%. Lest we forget, U.S. consumers have shown enough optimism in their economy this month, which bodes well for consumer stocks.
Americans Most Confident in Nearly 18 Years
According to the Conference Board, the consumer confidence index climbed to 133.4 in August from a revised 127.9 in July. The key economic indicator that measures attitudes on future economic prospects reached the highest level since October 2000 and surpassed the post-recession high of 130 scaled this February.
People’s confidence in the present situations improved from 166.1 last month to 172.2 this month, the highest since 2000. The future expectations index also rose from 102.4 to 107.6. Lynn Franco, director of economic indicators at the Conference Board, added that “expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018” (read more: US Consumers Most Confident Since 1990s Internet Boom: 5 Picks).
5 Solid Choices
As businesses and government raise their expenditure on software, research and development, and defense, respectively, investing in stocks from such areas seems prudent. Steady rise in consumer outlays also calls for investing in the consumer discretionary space. We have, thus, selected five solid stocks from the aforesaid areas that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Microsoft Corporation MSFT develops, licenses, and supports software, services, devices, and solutions. Currently, the company has a Zacks Rank #1. In the last 60 days, 15 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 7.3% in the same period. The stock’s expected earnings growth rate for the current quarter is 14.3%.
Avid Technology, Inc. AVID develops, markets, sells, and supports software, hardware, and integrated solutions for video and audio content creation, management, and distribution. The company currently has a Zacks Rank #2. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings climbed 233.3% in the same period. The stock’s expected earnings growth rate for the current quarter is a whopping 150%.
Huntington Ingalls Industries, Inc. HII engages in the designing, building, overhauling, and repairing military ships in the United States. Currently, the company has a Zacks Rank #2. In the last 60 days, four earnings estimates moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings jumped 6.4% in the same period. The stock’s expected earnings growth rate for the current quarter is 26.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Johnson Outdoors Inc. JOUT is a leading global outdoor recreation company that turns ideas into adventure with innovative, top-quality products. Currently, the company has a Zacks Rank #1. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 11.4% in the same period. The stock’s expected earnings growth rate for the current year is 46.4%.
BJ's Restaurants, Inc. BJRI owns and operates casual dining restaurants in the United States. Currently, the company has a Zacks Rank #1. In the last 60 days, nine earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings improved 6.5% in the same period. The stock’s expected earnings growth rate for the current quarter is 40%.
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