On Feb 28, the Department of Commerce reported that U.S. GDP for the fourth quarter of 2018 grew 2.6%. This figure was better than the consensus estimate of growth of 2.4%. Better-than-expected GDP growth can be attributed to 0.7% increase in consumer spending, which constitutes more than 70% of U.S. GDP.
Several economists hinted that GDP growth rate might slow down in the first quarter of 2019 due to a 35-day long partial government shutdown. However, the fundamentals of the U.S. economy remain strong in 2019 as evident from solid manufacturing, labor market and consumer confidence data. Consequently, it will be a prudent move to invest in stocks with a favorable Zacks Rank and strong growth potential.
US GDP Hits Target Rate in 2018
In the four quarters of 2018, U.S. GDP grew 2.2%, 4.2%, 3.5% and 2.6% (initial estimate), respectively. However, the Bureau of Economic Analysis reported that annualized real GDP growth in 2018 was little more than 2.9%, slightly below the target rate of the government.
U.S. consumer spending was $13,044.25 billion in the fourth quarter of 2018 compared with $12,953.29 billion in the third quarter of 2018. Notably, consumer spending reached its all-time high in the fourth quarter of 2018, taking into account the period between 1950 and 2018.
Economic Fundamentals Remain Strong
Conference Board’s Consumer Confidence index for February surged to 131.4, its highest level in four months. The consensus estimate was 124.8. Moreover, the Future expectation index (which track consumer’s expectations for next six months) jumped 103.4 from 89.4.
The Institute for Supply Management reported that the U.S. manufacturing index in January came in at 56.6, surpassing the consensus estimate of 54.3. Notably, any reading above 50 indicates expansion of the manufacturing sector and a reading above 55 highlights robust manufacturing growth.
The U.S. economy added 304,000 jobs in January 2019, significantly higher than the consensus estimate of 154,000. These gains come despite indications from several quarters that the economy is near full employment.
Three Major Developments in 2019
First, on Feb 28, the U.S. government postponed the hike of tariff rate from 10% to 25% on $200 billion of Chinese exports as trade related negotiations between the two countries made substantial progress. CNBC reported that China committed to import $1.2 trillion of U.S. goods.
Second, on Feb 27, in his testimony before the House Committee, Fed Chair Jerome Powell said that the central bank will not downsize its $4 trillion balance sheet this year. Powell also said that while the U.S. economy is currently in good shape, it may face headwinds from global economic slowdown. Consequently, the Fed will maintain its dovish monetary stance at least for the time being.
Third, on Feb 12, Republican and Democrat Congressional leaders reached an agreement to allow $1.4 billion funding for fencing along the United States – Mexico border. The amount was way less than $5.7 billion demanded by President Trump. Although Trump declared a national emergency on account of his demands, he also said “I don’t think you’re going to see a shutdown.”
Our Top Picks
At this stage, investment in stocks with strong growth potential will be lucrative. Our selection is backed by a good Growth Score and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that stocks with a Growth Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the growth-investing space. We have handpicked five such stocks with stated combination.
Rent-A-Center Inc. RCII leases household durable goods to customers on a rent-to-own basis. The company has expected earnings growth rate of 92.4% for the current year. The Zacks Consensus Estimate for the current year has increased 7.9% over the past 60 days.
TESSCO Technologies Inc. TESS architects and delivers products and value chain solutions to support wireless systems in the United States. The company has expected earnings growth rate of 38.2% for the current year. The Zacks Consensus Estimate for the current year has improved 22.6% over the past 60 days.
Deckers Outdoor Corp. DECK designs, markets, and distributes footwear, apparel, and accessories for casual lifestyle use and high performance activities. The company has expected earnings growth rate of 38.3% for the current year. The Zacks Consensus Estimate for the current year has increased 16.4% over the past 60 days.
eGain Corp. EGAN operates as a software-as-a service provider of customer engagement solutions in the United States, the United Kingdom, India, and internationally. The company has expected earnings growth rate of 216.7% for the current year. The Zacks Consensus Estimate for the current year has improved 137.5% over the past 60 days.
Digital Turbine Inc. APPS provides media and mobile communication solutions for mobile operators, application developers, device original equipment manufacturers, and other third parties worldwide. The company has expected earnings growth rate of 240% for the current year. The Zacks Consensus Estimate for the current year has improved 75% over the past 60 days.
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