Consumer discretionary sector and related exchange traded funds could be shaking off the winter slowdown as warmer weather and rising consumer confidence help free up Americans’ wallets.
Year-to-date, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) rose 5.3%, First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD) gained 4.8% and Vanguard Consumer Discretionary ETF (NYSEArca: VCR) increased 5.2%. [Deflationary Pressures to Support Consumers, Retail ETFs]
Economists argue that warming temperatures, confident consumers and improved housing market will support growth and further hiring after another frigid winter stifled growth in the first three months, reports Rich Miller for Bloomberg. [The Stars Align for Homebuilder ETFs]
“There’s going to be a bounce-back in the second quarter,” Nariman Behravesh, chief economist at consultants IHS Inc., said in the Bloomberg article. “The consumer is going to drive growth.”
According to a Bloomberg survey, economists believe that the unusually harsh winter storms cut 0.5 percentage points from growth and restrained hiring in March. Nevertheless, the economists also project a swift rebound in the second quarter, similar to what occurred in 2014.
For instance, some early signs are promising, such as a bounce in automobile sales to a seasonally adjusted annualized rate of 17.2 million in March, the fastest in four months, after the winter slowdown. The automobile sector makes up 5.4% of XLY, 2.3% of FXD and 11.2% of VCR.
Looking ahead, economists anticipate that consumers, which make up about two-thirds of gross domestic product, could soon dip into their savings after savings rates rose to 5.8% in February, the highest since December 2012, especially with consumer confidence on the rise. The Bloomberg index of consumer sentiment was at 46.2 as of March 29, its strongest end to a quarter since Q2 2007.
“Consumer spending is starting to look more and more like a coiled spring, and we could definitely see it pick up,” Guy Berger, U.S. economist at RBS Securities Inc., said in the article.