Consumer Spending Declines: 3 Stocks to Dump Now

The end of the holiday season has not been particularly encouraging for the U.S. consumer discretionary sector, as consumer spending slipped in January for the second consecutive month. This reflects that most households tempered down purchases despite cheaper gasoline prices.

Consumer spending – which accounts for roughly 70% of U.S. economic activity – slipped 0.2% for the second consecutive month after falling 0.3% in December despite lower gasoline prices and drop in purchases of high-priced items. However, real consumer spending (adjusted for inflation) edged up 0.3%, after marginally declining 0.1% in December.

Additionally, factory activity slowed in February and construction spending declined 1.1% in January, according to the U.S. Commerce Department which proves that economic growth has started to moderate, after picking up steam in the second half of the last year.

“Savings” in Focus Despite Fuel Price Drop

Lower gasoline prices were believed to result in overall economic growth in the U.S. by giving consumers more money to spend at restaurants, retail, and other discretionary items and services. However, while the nearly 40% slide in gasoline prices since June — to $2 and below — has strengthened the financial position of households, it has given only a moderately aided the economic growth.

Despite certain pockets of economic growth, the impact was not broad based as Americans do not appear to be keen on spending the money that they are saving at the pump. Americans' saving rate rose to 5.5% in January — the highest since Dec 2012 — from 5% in the prior month, according to the U.S. Commerce Department.

The increase in savings also affected retailers as retail sales remained sluggish in January and December. In January, household spending also declined for the second straight month. Spending on non-durable goods, a category that includes day-to-day items such as clothes, food and gasoline, dropped 2.2%, reflecting 10.4% drop in energy prices. Durable-goods purchases fell 0.1% from a previous month.

3 Stocks to Dump

Given the disappointing consumer spending numbers, it will be a prudent idea to stay away from the following stocks:

Abercrombie & Fitch (NYSE:ANF) operates as a specialty retailer of casual apparel for men, women, and kids. In the past month, the Zacks Consensus Estimate for the current quarter was lowered 3.4% to $1.14 per share. This Zacks Rank #5 (Strong Sell) company also plunged 13.6% year-to-date.

Farmer Brothers (NASDAQ:FARM) engages in the manufacture, wholesale and distribution of coffee, tea and culinary products in the United States. The company’s Zacks Consensus Estimate for the current quarter was revised lower by 36% to 16 cents per share. This Zacks Rank #4 (Sell) also plunged 17.8% year-to-date.

The Cheesecake Factory (NASDAQ:CAKE) owns and operates casual dining and full-service restaurants in the United States and Puerto Rico. In the past month, the Zacks Consensus Estimate for the current quarter was lowered 2% to 49 cents per share. This Zacks Rank #4 also declined 5.6% year-to-date.

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