uploads///XRT versus retail sales

Consumer Confidence Is Still Up Despite Decline in US Retail Sales

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Retail sales declined in the US

Retail sales are an indicator of consumer spending. For the month of February, retail sales declined by 0.6% over January readings. The median expectation was for a 0.3% increase in retail sales. Excluding auto sales, retail sales recorded a 0.1% decline in February compared to January 2015. Excluding auto and gas, the decline stood at 0.2%, indicating that auto sales have been a drag on retail sales for the month of February. Auto sales have declined by 2.5% in February, following a 0.5% rise in January.

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Consumer confidence is up on an improving job market

The US labor market has been improving for some time now. As we discussed in part one of this series, jobless claims are declining, household incomes are up, and consumer confidence is increasing. The US consumer sentiment index rose to its 11-year high recently. There are some mixed indicators coming from the US retail sector currently. Consumer confidence is reasonably high and discretionary income is improving. However, spending still needs to pick up pace.

Investors should consider retail sales reports

Retail reports around this time of the year are often impacted by seasonality. The winter months are often hard for retailers such as Kohl’s (KSS), Dollar General (DG), and The Home Depot (HD), as consumers often tend to refrain from or delay certain expenditures on account of the snowy winter weather.

The upcoming spring should help warm up the retail sales registers as well. Investors in consumer discretionary funds like the Consumer Discretionary Select Sector SPDR ETF (XLY) and the SPDR S&P Retail ETF (XRT) should also take into account the seasonality factor when assessing their returns from these ETFs during the winter months.

The chart above clearly shows how investor confidence in the US retail sector, as gauged by the performance of the SPDR S&P Retail ETF (XRT), has been growing over the last five years, despite seasonal upswings and downswings.

In the next article, we’ll take a look at some consumer price releases in Europe.

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