Rising personal income and consumer sentiment could help goad Americans to open up their wallets, potentially bolstering discretionary stocks and sector-related exchange traded funds.
Year-to-date, the iShares US Consumer Services ETF (NYSEArca: IYC) gained 6.0%, Vanguard Consumer Discretionary ETF (NYSEArca: VCR) rose 6.2% and the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) increased 10.1%.
Consumer spending was 0.3% higher in November, the most in three months, after an uptick in wages and minimal inflation, Reuters reported.
U.S. personal income in November increased for an eight straight month on wage gains The Commerce Department revealed that income was up 0.3% last month, compared to expectations for a 0.2% increase, after an unrevised 0.4% rise in October.
Meanwhile, inflation continued to run below the Federal Reserve’s 2% target last month. The price index for consumer spending was unchanged at 0.1%. Excluding food and energy, prices were only up 0.1% after being unchanged in October.
Consequently, with wages up and inflation low, the University of Michigan revealed consumer sentiment rose to 92.6 in December, or just shy of the 92.9 average for 2015, the highest reading since 2004, Reuters reports.
“The December gain was largely due to lower inflation, which bolstered real incomes and brightened buying plans for household durables,” the survey’s chief economist, Richard Curtin, said in a release. “Indeed, there have been only three surveys in more than the past half century in which a higher proportion mentioned the availability of price discounts for durables.”