Positive news regarding inflation is indicating that those worries should start to ease, thanks to a lower-than-expected rise in producer prices. This is great news, but how will it affect consumer spending and the exchange traded funds (ETFs) that follow this economic indicator?
The Labor Department reported that excluding food and fuel, so-called core prices unexpectedly fell by 0.1% in May. Many experts suggest that these prices will remain at current levels because of weak sales gains by companies, report Courtney Schlisserman and Robert Willis of Bloomberg. Unfortunately, this positive news will most likely not defeat any of the challenges faced by the consumer spending environment.
Unemployment levels continue to increase, employers continue to be wary of the state of the overall economy and shifted consumer behavior and forced consumers to think twice about spending that extra dollar on most discretionary items. Until these issues are dealt with and unemployment numbers revert back to their mean, it may remain difficult for the sector to fully bounce back.
One sign of continuing consumer worries is this: J.M. Smucker’s (SJM) fourth quarter profit more than doubled, reports the Associated Press. Jam, jelly, peanut butter and other types of home cooking ingredients are all the rage in the recession, and Smucker’s is also reaping the benefits of acquiring Folger.
- Consumer Staples Select Sector SPDR (XLP): down 4.1% year-to-date
- Retail HOLDRs (RTH): is up 3.3% year-to-date
- SPDR S&P Retail ETF (XRT): which is up 31.8% year-to-date
Despite the aforementioned, it isn’t all gloom on the consumer spending front. One area that is seeing somewhat of an influx of consumer spending is home entertainment. According to a prominent investment analysis firm, by the end of the year, the entertainment sector should see a growth of nearly 2.7%, fueled mainly by digital media, states John Winn of theCelebrityCafe.com.
More and more people are opting to stay home and watch movies rather than go out on the town. As a result, the PowerShares Dynamic Leisure & Entertainment (PEJ) is up 15.9% year-to-date. Among its top holdings are Liberty Media (LMDIA; 5.2%), Disney (DIS; 4.9%) and Discovery Communications (DISCA; 4.7%)
For more stories on the retail and consumer sector, check out our retail & consumer category.
Kevin Grewal contributed to this article.