Americans have started to splurge on discretionary items after a ho-hum winter season. This is well reflected in the pickup in retailers’ March sales, putting an end to three straight months of a decline. Consumer outlays rose on the back of a strong jobs market, rise in income, tax cuts, and refunds. Consumer optimism, by the way, continues to remain at a high level.

This calls for investing in consumer discretionary companies that are poised to grow on the signs of renewed consumer spending strength.

Sales at Retailers Pop

According to the Commerce Department, U.S. retail sales rose a solid 0.6% in March for the first time in four months. The so-called core retail sales that exclude food services, auto dealers, building-material stores and gasoline stations, also climbed 0.4%.

Sales rose at eight of 13 major retail categories. Auto dealers notched their best month since last November, up 2%. A recent report has shown pickup in purchases of cars and light trucks to a 17.4 million annualized rate in March, the fastest this year.

Sales at health and personal care stores went up 1.4%, the highest in two years. Internet retailers, food services and drinking places, and stores that sell home furnishing goods were some of the other big gainers. A rise in sales at U.S. clothing retailers also contributed significantly.

Easter holiday in the last weekend of March drove more traffic in stores. Thus, consumers ended a shopping hiatus and spent more money after lying low for a few months due to harsh winter weather conditions.

What Does the Retail Sales Uptick Indicate?

Such a pickup underlined the improved financial conditions of American households and also the resilience of the U.S. economic expansion that will turn nine years old at the end of June.

This increase in spending may not necessarily save the U.S. economy from a downshift in the first quarter, but, definitely indicates that the recent drop in consumer outlays is about to end.

Chief economist of Amherst Pierpont Securities, Stephen Stanley also added that “the somewhat improved performance in March was too late to help the first quarter, but it does set the stage for a marked pickup in real consumer spending in the second quarter.”

What Boosted Consumer Spending?

Steady job gains and rise in income levels fueled consumer spending. The United States added an average of 202,000 jobs a month in the first quarter, higher than the average gains in the same period of 2017 and 2016. The unemployment rate remained at a 17-year low of 4.1% in March, while workers’ hourly wages rose 8 cents, or 0.3%, to $26.82 in the month.

The recent tax cut has also put a lot of money in consumer’s pocket. After tax wages increased 7.5% year over year in March, up from 5.2% in February, per data accumulated from Bank of America Corporation’s (BAC - Free Report) credit cards, debit cards, and customer accounts.

The tax bill trimmed the ultra-rich individual tax bracket from 39.6% to 37%, while the middle class has also been spared from paying hefty taxes. Also, income-tax refunds are giving consumers extra cash to spend and their sentiments continue to remain relatively high.

5 Solid Picks

Courtesy of a rise in household spending, consumer discretionary companies are poised to benefit the most as outlays plays a major role in determining their revenues. We have, thus, selected five consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

America's Car-Mart, Inc. (CRMT - Free Report) operates as an automotive retailer in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 1.9% in the last 60 days.  The company’s projected growth rate for the current and next quarter is 37.5% and 32.2%, respectively. The stock’s expected earnings growth rate for the current year is 27.8%, better than the industry’s estimated growth of 23.5%.

Lithia Motors, Inc. (LAD - Free Report) operates automotive franchises and retails new and used vehicles in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 6.9% in the last 60 days.  The company’s projected growth rate for the current and next quarter is 30.9% and 25%, respectively. The stock’s estimated earnings growth rate for the current year is 26.3%, higher than the industry’s projected growth of 23.5%.

At Home Group Inc. (HOME - Free Report) operates home decor superstores in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 2.5% in the last 60 days. The company’s projected growth rate for the current and next quarter is 42.1% and 50%, respectively. The stock’s expected earnings growth rate for the current year is 29.8%, compared with the industry’s estimated growth of 9.3%.

Dine Brands Global, Inc. (DIN - Free Report) owns, franchises, operates, and rents full-service restaurants in the United States and internationally. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings moved up 21.5% in the last 60 days. The stock’s expected earnings growth rate for the current year is 22.7%, better than the industry’s estimated growth of 10.7%.

Urban Outfitters, Inc. (URBN - Free Report) retails women's and men's fashion apparel, activewear, intimates, footwear, accessories, home goods, electronics, and beauty products. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 18.8% in the last 60 days. The company’s projected growth rate for the current and next quarter is 123.1% and 54.6%, respectively. The stock’s expected earnings growth rate for the current year is 36.5%, better than the industry’s estimated growth of 14.1%.