Credit: Shutterstock photoThe nation's gross domestic product (GDP) grew at a faster pace than forecasted in the third quarter, indicating signs of resilience from consumers and businesses. The expansion dispelled qualms that hurricanes Harvey and Irma would hamper production levels.
In fact, the economy recorded its best 6-month stretch of growth in 3 years, a sign that it might be recovering from the long spell of slow growth. An uptick in consumer spending and business investment in equipment boosted economic growth. Consumer outlays in particular improved on a steady job market and healthier household finances. Hence, it seems judicious to invest in areas where consumers have led the way.
U.S. GDP Grows 3%, Storm Impact Nullified
The U.S. economy expanded at a solid 3% seasonally adjusted annual rate in the third quarter of 2017, according to Commerce Department data. Such an expansion came on the heels of 3.1% growth in the second quarter. It also marks the first time of two consecutive quarters of 3% growth or more since mid-2014 for the economy.
The economy shook off the impact of hurricanes Harvey and Irma were expected to impede growth in the July-September quarter. The hurricanes inflicted massive damage in Texas and Florida during August and September.
Production at factories, offices and transportation centers were interrupted. Precisely, the storms disrupted fuel production in Texas and agricultural production in Florida. The U.S. economy, in fact, lost 33,000 jobs last month, marking the first month of decline in employment in seven years.
Economy Gains on Solid Consumer Spending
Nevertheless, the economy was boosted by solid consumer spending. The main engine of the economy grew at 2.4% over the quarter after a 3.3% gain in the second quarter. Such an uptick in household outlays is commendable since lower spending was anticipated owing to the storms.
Meanwhile, consumers have stepped up purchases of durable goods including long lasting products like refrigerators. Spending on motor vehicles was driven by the need to replace damaged cars. Needless to say, a steady job market buoyed household optimism, while low borrowing costs will provide the wherewithal to sustain spending.
A clearer view of last month's labor market data, in fact, showed that keeping the effects of the hurricane aside, the U.S. employment scenario is continuing to tighten. The unemployment rate declined to 4.2% in September, the lowest since February 2001, while wages increased 0.5% to an average of $26.55 an hour, per the Labor Department. In fact, in the last 12 months, hourly pay increased 2.9%, up from 2.7% in the prior month and also in line with a post-recession high.
Business Investments Ramp Up
The first reading of the GDP also showed continued strength in business investment. Nonresidential investment, which includes outlays on equipment, structures and intellectual property increased at a 3.9% annual rate in the third quarter.
Among other bright spots, business equipment investment climbed 8.6% for a fourth quarter of growth, the longest streak since 2014. However, residential investments and national defense spending, to name a few, saw declining investments in the said quarter.
Overall, the economy continues to be in good shape and has expanded for nine straight quarters since the recession. Renowned economists also gave a positive view on the economy.
Economist Views
Paul Ashworth, chief U.S. economist at Capital Economics - "The 3% growth rate will be welcomed by the White House and demonstrates that the hurricanes ended up having little lasting impact on the economy."
Michael Feroli, chief U.S. economist at JPMorgan Chase & Co - "The gain in equipment investment shows businesses may be getting confident about the expansion, both here in the U.S. and abroad". He added that "consumers stepped down a little from the second quarter but their spending still expanded at a decent pace."
Steven Blitz, chief U.S. economist at TS Lombard - "If the point of looking at Q3 data is to confirm whether the Fed is on track for a series of quarterly 25bp increases in policy rates, consider the point was made."
5 Potential Gainers
As consumers continue to increase their spending, big-ticket items like auto and auto parts stand to gain. In fact, other durable goods like appliances, furniture, jewelry, consumer electronics and sporting goods are also affected as spending plays a major role in determining their revenues. Durables have an extended product life and are not typically worn out within a short span of time.
Significantly higher equipment spending also calls for investing in such a space. We have, thus, selected five solid stocks from the aforesaid areas that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
CarMax, IncKMX operates as a retailer of used vehicles in the United States. The stock has a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings rose 2.9% over the last 90 days. The company's expected growth rate for the current year is 15.9%, way higher than the industry 's estimated growth rate of 1.6%.
Fox Factory Holding CorpFOXF is engaged in the manufacturing, sale and service of ride dynamics products. The company currently has a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings increased 4.9% in the last 90 days. Fox Factory is expected to yield a return of 21.5% this year, way more than the industry 's projected growth rate of 0.4%.
Five Below IncFIVE offers a wide variety of merchandise that includes everything from sporting goods, games, fashion accessories and jewelry, to hobbies and collectibles. Right now, the company has a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings advanced 1.8% over the last 60 days. The stock is expected to give a return of 27.8%, higher than the industry 's estimated growth rate of 6.3%. You can see the complete list of today's Zacks #1 Rank stocks here .
Conn's IncCONN - a Zacks Rank #1 company - sells major home appliances, including refrigerators, freezers, washers, dryers and ranges, and a variety of consumer electronics, including projection, plasma and LCD televisions.
The Zacks Consensus Estimate for its current-year earnings soared more than 100% in the last 90 days. The company's expected growth rate for the current year is 357.9%, way higher than the industry 's estimated growth rate of 3.8%.
Caterpillar Inc.CAT , the world's largest manufacturer of construction and mining equipment, sports a Zacks Rank #1.
The Zacks Consensus Estimate for its current-year earnings rose 22.6% over the last 90 days. The company's expected growth rate for the current year is 87%, much higher than the industry 's projected growth rate of 26%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
