Americans are gaining optimism, as evident from the University of Michigan’s consumer sentiment data, which increased to a four-month high lately. The index came in at 63.9, up 4.7 (7.9%) from the May final. The reading was above the forecast of 60.0.
Rising consumer confidence bodes well for household spending in the coming months and is expected to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending.
Upbeat Retail Sales
In an unanticipated turn of events, retail sales in the United States saw a 0.3% rise month on month in May 2023. This comes after a 0.4% rise in April and outperforms market predictions of a 0.1% downturn, per tradingeconomics.
As for core retail sales, which exclude car sales, gasoline, building materials, and food services, they saw a 0.2% rise, succeeding a 0.6% increase in April. The statistics imply that consumer spending stays robust, undeterred by the increase in inflation and interest rates.
Consumer Savings Patterns
The consumer savings pattern is an economic indicator that provides insight into the financial health of households. In April 2023, the personal saving rate in the United States amounted to 4.1%, which was below a decade-long average of roughly 8.9%.
Economists believe that the decline in the savings rate stems from higher inflation and slower wage growth. Still, the current rate improved from that of June 2022, when the rate had slipped to a 15-year low of 2.7%.
We can see that despite high inflation, rates and energy prices, consumers keep splurging on the retail industry. Consumer sentiment is also decent. This suggests that consumers have more confidence in the economy and are more likely to spend.
Ebbing Chances of U.S. Recession
The likelihood of a U.S. recession has fallen in recent months. The alleviation of the threat of a contentious debt-ceiling dispute, coupled with seemingly limited economic drag from the banking sector, has contributed to this decreased risk, according to Goldman Sachs Research.
The economists at Goldman Sachs now estimate the probability of a recession in the upcoming 12 months at 25%. This is a substantial drop from their previous forecast of 35%, which was made soon after the collapse of Silicon Valley Bank in March.
Fed to Slow Rate Hike Momentum & Magnitude
The Fed enacted a pause in rate hike in its June FOMC meeting after 10 successive hikes since March 2022. At the current level, the Fed is likely to enact two 25-bp rate hikes this year. The magnitude is pretty lower compared with what we have seen in the past year. The momentum has also slowed. This should bode well for consumers’ spending ability.
ETFs in focus
Against this backdrop, below we highlight a few retail ETFs that gained by a solid margin in the past month and may gain further strength.
Amplify Online Retail ETF IBUY – Up 8.9%
ProShares Online Retail ETF ONLN – Up 6%
First Trust S-Network E-Commerce ETF ISHP – Up 4.8%
VanEck Retail ETF RTH – Up 2.6%
SPDR S&P Retail ETF XRT – Up 2.2%
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Free: See Our Top Stock and 4 Runners Up >>SPDR S&P Retail ETF (XRT): ETF Research Reports
VanEck Retail ETF (RTH): ETF Research Reports
Amplify Online Retail ETF (IBUY): ETF Research Reports
ProShares Online Retail ETF (ONLN): ETF Research Reports
First Trust S-Network E-Commerce ETF (ISHP): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
