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U.S. consumer spending increased 1% in August, mirroring the gradual regaining of confidence and economic recovery from the worst of the coronavirus pandemic. The August gain marked the third straight monthly increase in consumer spending.

The rise in consumer spending comes despite a decline in personal income. However, with a vaccine for the deadly coronavirus yet to be developed, people are still reeling under the fear of getting infected and are stockpiling on necessities, which is pushing up their spending.

Americans Spend More Despite Decline in Personal Income

A report from the Commerce Department on Oct 1 showed that consumer spending rose 1% in August after increasing 1.5% in July. Economists had forecast consumer spending, which accounts for more than two-thirds of U.S. economic activity, to advance 0.8% in August.

The rise comes despite a 2.7% drop in personal income in August, reflecting a decline in unemployment insurance benefits. A $600 unemployment subsidy ended in July and was replaced by a $300 supplement. Income increased 0.5% in July.

However, the economy is on track for record growth in the third quarter after a historic slump in the April-June period. Third-quarter GDP growth estimates are topping a 32% annualized rate. The economy contracted at a 31.4% pace in the second quarter, marking the deepest decline since the government started keeping records in 1947.

Consumers Showing Faith in Economy

The United States witnessed the worst decline in the second quarter since 1947. But people have not lost confidence in the economy’s strength and are willing to spend. Consumer confidence fell to a record low in the early months of the pandemic as travel froze up and shutdown orders forced many restaurants, bars, entertainment venues and other retailers to close. But life somewhat has started going back to normal, and consumer spending is improving.

We cannot, however, ignore that even though people are willing to spend on entertainment, travel, or holiday, there aren’t too many options given that the fear of the virus is preventing states to fully get back to normal functioning. So, consumer spending is likely to be more on essential commodities in the days to come.

Our Choices

Grocery Outlet Holding Corp. GO is a high-growth, extreme-value retailer of quality, name-brand consumables and fresh products that are sold through a network of independently owned and operated stores.

The company’s expected earnings growth rate for the current year is 54.4%. The Zacks Consensus Estimate for current-year earnings has improved 22% over the past 60 days.  Grocery Outlet Holding has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.