The retail sector has shown immense resilience amid price pressures and higher borrowing costs. Sales held steady in June, totaling $704.3 billion, ahead of expectations of a decline of 0.3%, the Commerce Department said last week.

The solid performance follows an upwardly revised 0.3% jump in retail sales in May. Year over year, retail sales grew 2.3% in June.

Online sales rose 1.9% in June after increasing 1.1% in May. Gasoline prices dropped last month, resulting in a 3% drop in sales at gas stations. However, this money is being used for spending on other goods.

Sales at building materials and garden equipment stores rose 1.4%, while food services and drinking places saw a 0.3% jump in sales. Also, sales at furniture stores increased 0.6%.

Americans have been spending cautiously amid high inflation. Savings made during the pandemic have now been exhausted and consumers are cutting down on discretionary purchases and shifting to staples.

The Federal Reserve is finally confident about starting its easing cycle. Interest rates are at record highs after the Federal Reserve adopted a strict monetary tightening campaign and hiked rates by 525 basis points.

However, inflation has finally started showing signs of a decline in the past couple of months, reinforcing expectations that the Fed will soon go for a rate cut. Markets are now pricing in a 25-basis points rate cut in the Fed’s September meeting.

Retail sales are expected to increase even more once the Federal Reserve begins cutting interest rates, as this will reduce borrowing costs and provide consumers with more purchasing power.

Our Picks

Given the encouraging economic environment, it would be prudent for savvy investors to consider betting on retail stocks like Urban Outfitters, Inc.(URBN Quick QuoteURBN - Free Report) , The Gap, Inc. , Costco Wholesale Corporation (COST Quick QuoteCOST - Free Report) , Burlington Stores, Inc. (BURL Quick QuoteBURL - Free Report) and DICK'S Sporting Goods, Inc. (DKS Quick QuoteDKS - Free Report) . Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home decor and gift products. URBN merchandise is generally sold directly to consumers through stores, catalogs, call centers and e-commerce platforms. Urban Outfitters has operations in the United States, Canada and Europe.

Urban Outfitters’ expected earnings growth rate for the current year is 9.9%. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the past 60 days. URBN currently has a Zacks Rank #2.

The Gap, Inc. is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. GPS offers products for men, women and children under the Old Navy, Gap, Banana Republic, Athleta, Intermix and Hill City brands.

The Gap’sexpected earnings growth rate for the current year is 22.4%. The Zacks Consensus Estimate for current-year earnings has improved 26.8% over the past 60 days. GPS currently sports a Zacks Rank #1.

Costco Wholesale Corporation sells high volumes of food and general merchandise (including household products and appliances) at discounted prices through membership warehouses. Costco is one of the largest warehouse club operators in the United States. COST also operates e-commerce websites in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.

Costco Wholesale Corporation’s expected earnings growth rate for the current year is 10.3%. The Zacks Consensus Estimate for current-year earnings improved 0.9% over the past 60 days. COST has a Zacks Rank #2.

Burlington Stores, Inc. functions as a retailer of branded apparel products and is a Fortune 500 company. BURL operates in the United States and Puerto Rico. Burlington Stores offers products such as ladies sportswear, menswear, youth apparel, baby furniture, accessories, home décor and gifts, and coats.

Burlington Stores’ expected earnings growth rate for the current year is 25.4%. The Zacks Consensus Estimate for current-year earnings improved 3.7% over the past 60 days. BURL presently sports a Zacks Rank #1.

DICK'S Sporting Goods, Inc. operates as a major omnichannel sporting goods retailer, offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, fishing, tennis, golf and water sports, among others. DKS offers these items through a blend of associates, in-store services and unique specialty shop-in-shops.

DICK'S Sporting Goods’ expected earnings growth rate for the current year is 6.6%. The Zacks Consensus Estimate for current-year earnings has improved 3.7% over the past 60 days. DKS currently carries a Zacks Rank #2.