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By: Sam Quest
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Global markets were stricken by yesterday’s events in Ukraine. Uncertainty surrounding the Kremlin’s action and its motives started a tidal wave of anxiety and uncertainty in the Asian and Australian markets that had a ripple effect through the markets worldwide.

While all that was the backdrop to yesterday’s moves, there was a plethora of data coming out of the US, all showing continued strength and optimism in the world’s largest economy. While the numbers failed to move the markets in a positive direction yesterday, the trend has reversed today.

Here’s why we are bullish on continuing US growth and we look at companies and industries that can benefit from it.

Personal Consumption Continues to Grow

Personal consumption figures as released by the Department of Commerce show a real increase of 0.3% month-over-month (MoM) in January, while nominal consumption increased by 0.4% MoM during the same period. Continued growth since April of last year shows that the largest contributor to the US economy, personal spending, is not only growing but translating into higher sales for companies that benefit from an increase in discretionary spending.

General Motors Company (GM), Las Vegas Sands (LVS), Nike, Inc. (NKE) and Starbucks Corp. (SBUX) all outperformed the broader market and the Consumer Discretionary Select SPDR (XLY) was up 38% for 2013, compared to the S&P which was up a little over 26%.

The Luxury Goods Industry is also expected to benefit from continued growth in personal consumption and consumer spending and we at Bidness Etc remain bullish on the Retail Industry in general but also Tiffany & Co. (TIF) and Ralph Lauren Corp. (RL) in particular.

Housing Leads Construction Spending

Construction spending figures were probably the biggest surprise yesterday. With an expected contraction of a half a percent MoM, the Deptartment of Commerce released data that shows a slight increase of a tenth of a percent in January.

Spending was expected to decline due to unusually extreme weather in the country stretching from the mid-west all the way to the north east. The surprise reading was led by spending in the residential sector with private residential spending seeing a rise of 1.1% MoM.

Public residential construction spending was down the most with a decline of 13.4% MoM, while private non-residential and public non-residential both declined by 0.2% and 0.5% respectively.

Public residential construction spending is the only segment that has declined since last year, while all the rest are either up slightly or in the case of private construction spending, up more than 13%. Fluor (FLR) and Jacobs Engineering Group (JEC) were up 31.6% and 44% respectively in the Construction and Engineering industry and could see a further increase in their valuations as non-residential construction spending picks up.

Manufacturing Finds Strong Footing

The Institute of Supply Management (ISM) released February’s reading for the manufacturing Purchasing Managers’ Index (PMI) at a strong 53.2 versus an expected reading of 52. Any reading of over 50 shows an expansion in manufacturing activity while a reading below 50 suggests a contraction.

Manufacturing in the US has seen strong expansion over the past 12 months, showing growth in all but two months when it was actually flat. Companies in the Capital Goods sector which are involved in the manufacturing of industrial goods will benefit the most from a rising PMI. This includes a list of some well-known companies such as Boeing Co. (BA) and Lockheed Martin Corp. (LMT) in aerospace & defense, and Caterpillar Inc. (CAT) and Cummins Inc. (CMI) in machine manufacturing.

While the aerospace industry has had a record year machine manufacturers have underperformed the market due to their significant exposure to the mining industry. Companies like CAT were able to offset some of their losses through their construction businesses.

Companies with diversified product portfolios that include conglomerates such as General Electric Company (GE), 3M Company (MMM) and United Technologies Corp. (UTX) also outperformed the market last year. 3M was up the most at 48% followed by UTX and GE, which were up 35.48% and 31.35% respectively.

Conclusion

Developed nations and the US specifically have helped sustain a slow but steady global recovery. Yesterday’s data shows improving fundamentals in the US although construction spending still has a long way to go in getting back to pre-recession levels. Consumer confidence levels have also been rising over the last two years but are still short of 2006 levels. As the job market improves and unemployment levels continue to drop, we can expect consumer spending to continue to grow and in turn have a positive effect on the whole economy.  

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