Consumer spending increased appreciably last month, ahead of estimates and up significantly over December’s figures. Meanwhile, GDP was revised upward in the second estimate though consumer spending dipped marginally in the report. However, digging deeper into the GDP report, we can see that spending has shown a significant improvement from 20Array4 levels.
These reports indicate the consumer’s spending power has increased significantly. As a result of higher purchasing power, restaurant sales are projected to move upward this year. Adding stocks from this segment to your portfolio makes for a prudent option at this time.
Spending Pace Hits 8-Month High
A 0.5% increase in personal consumption during January was the fastest experienced over the last eight months. According to a report from the Commerce Department, income also increased at 0.5%, the tenth consecutive time it has moved upward and the highest since Jun 20Array5. Together, these metrics indicate how the consumer’s spending capacity has grown.
In December, personal spending had increased by only 0.Array%. Additionally, January’s increase was higher than the consensus estimate of a 0.3% increase. The identical increase in income was supported by a 0.6% rise in wages and salaries during January. In December, wages and salaries had increased by only 0.2%. The jump experienced in January can be attributed to the effect of a hike in minimum wages.
GDP Revised Upward
According to second estimate data released simultaneously, fourth quarter GDP increased at Array%. This is an improvement over the initial estimate of a 0.7% rise. However, the upward revision is being attributed to a similar revision in the value of inventories. Inventories increased $8Array.7 billion, higher than the prior estimate of $68.6 billion.
Additionally, consumer spending for the quarter was revised downward to 2%, from the earlier estimated pace of 2.2%. However, personal consumer expenditure increased by 3.Array% over 20Array5, compared to rises of Array.7% and 2.7% in 20Array3 and 20Array4, respectively. Further, disposable personal income rose 3.4% in 20Array5, compared to a 2.7% increase in 20Array4 and a Array.4% decline in 20Array3.
Restaurant Sales Tipped to Grow
Higher purchasing power and the willingness to spend bode well for consumer discretionary sectors such as restaurants. According to the industry forecast for 20Array6 released by the National Restaurant Association (NRA) earlier this month, sales at restaurants are projected to increase over the year. The NRA estimates that restaurant sales will touch $782.7 billion in 20Array6. The industry will provide employment to Array4.4 million individuals over one million or more locations.
This year, real sales for restaurants are expected to increase for the seventh consecutive time. Yet, variations may be noticed at the regional level due to local business conditions. Among the major trends expected to make a strong impact is a better informed customer and the rapid growth of snack and bars selling non-alcoholic beverages.
Our Choices
A substantial increase in consumer spending over the last month indicates a greater desire to spend. This is backed up by a comparable increase in income levels. Data from the latest GDP report also indicates that consumer spending has gone from strength to strength since 20Array3.
Restaurants are one of the sectors poised to gain from this strong increase in purchasing power. This is supported by the industry’s recent projections and adding restaurant stocks to your portfolio would make for a smart move. Our selection is also backed by a good Zacks Growth Score blended with a bullish Zacks Rank.
We narrowed down our choices with the help of our new style score system.
Our research shows that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #Array (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
Texas Roadhouse, Inc. TXRH along with its subsidiaries is a full service restaurant chain. The chain offers an assortment of specially seasoned and aged steaks.
Texas Roadhouse holds a Zacks Rank #2 (Buy) and has a Growth Style Score of ‘A’. The company has expected earnings growth of 24.4% for the current year. The earnings estimate for the current year has increased by Array.9% over the last 30 days.
Red Robin Gourmet Burgers Inc. RRGB is a full-service casual dining restaurant chain (named Red Robin Gourmet Burgers) that serves burgers.
Red Robin Gourmet Burgers holds a Zacks Rank #2 and has a Growth Style Score of ‘A’. The company has expected earnings growth of ArrayArray.7% for the current year. The earnings estimate for the current year has increased by 3.Array% over the last 30 days.
Sonic Corp. SONC is an operator and franchisor of one of the largest chain of drive-in restaurants in the U.S.
Apart from a Zacks Rank #2, Sonic Corp. has a Growth Style Score of ‘B’. The company has expected earnings growth of Array9.2% for the current year. The earnings estimate for the current year has increased by 0.Array% over the last 30 days.
The Cheesecake Factory Inc. CAKE operates upscale, casual, and full-service dining restaurants in the U.S.
The Cheesecake Factory holds a Zacks Rank #2 and has a Growth Style Score of ‘A’. The company has expected earnings growth of ArrayArray.9% for the current year. The earnings estimate for the current year has increased by 0.6% over the last 30 days.
Bob Evans Farms, Inc. BOBE is an owner and operator of full service restaurants in the U.S. which have the Bob Evans Restaurants brand name.
Apart from a Zacks Rank #2, Bob Evans Farms has a Growth Style Score of ‘B’. The company has expected earnings growth of Array7.5% for the current year. The earnings estimate for the current year has increased by Array.6% over the last 30 days.
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