Since consumer spending accounts for two-thirds of all economic activity, this isn’t a sector that you or your clients can afford to ignore. Exchange traded funds (ETFs) targeting both the domestic and international retail spaces have proliferated in recent years, so there’s no shortage of options available.
Retail Spending Today
It’s no secret that the retail sector has struggled since the start of the recession. Recently, though, things have changed for the better.
All the way from the docks to the car dealerships to the retail showroom, retail numbers are moving in an upward direction. Production is expanding on the factory floor, and retail items such as furniture and electronics are being snapped up more rapidly.
Retailers are even feeling bolstered by an encouraging start to the holiday season on Black Friday and Cyber Monday.
But should would-be investors in this sector get excited just yet? Yes…and no.
Although it’s off its lows, retail spending is still fairly weak compared to the highs several years back. That’s the good news. The bad news is that with home prices continuing to struggle and unemployment not budging, there’s still a risk that consumer spending will remain weak for some time and a bargain-hunting mentality will persist.
Nevertheless, retail looks to be moving in the right direction, and may continue to do so if the unemployment picture improves further and lending activity picks up.
Merchants are luring shoppers with deep discounts; a key reason the retail sales numbers surged past recent expectations.
The retail sector has two primary components: discretionary spending and staple spending.
Consumer Discretionary
Consumer discretionary companies are those that produce the non-essentials. When someone wants to splurge a little, he or she comes here to buy those little some things, but the flip side is that these companies are usually the ones hit first when the economy turns. Consumer discretionary products and services include automobiles, luxury goods, hotels and entertainment. Anything non-essential to survival would generally fall under this category.