ETF Trends
ETF Trends

The retail sales figures for October released Thursday showed the fifth straight monthly gain, but an exchange traded fund strategist spots a worrying trend in recent economic data.

U.S. retail sales climbed 0.5% last month, more than expected, thanks in part to a rise in electronics purchases. [ETF Spotlight: Retail Sector and the Holiday Shopping Season]

The retail sales data are another sign that the U.S. economy may avoid another recession as it muddles through the current soft patch, says Russ Koesterich, global chief investment strategist at ETF manager iShares.

“But a look behind the retail numbers also reveals a major risk facing the U.S. economy,” he wrote at the iShares blog.

“With unemployment still high and wages growing so slowly that hourly workers are losing purchasing power at the fastest rate in 20 years, you may be wondering where consumers are getting the money to buy new cars or the latest iPhone,” he said. In fact, better-than-expected retail spending is “being supported by lower savings and by help from the government.”

The strategist noted that the U.S. savings rate is dropping again, falling to 3.6% in September, the lowest rate since 2007. Meanwhile, government transfer payments — such as Social Security, unemployment and disability payments — have jumped in recent years.

“Saving less can continue for a while longer, but not indefinitely. More importantly, the U.S. consumer’s reliance on transfer payments shows why investors should pay particular attention to any budget cuts that come out of the Congressional super committee negotiations,” Koesterich wrote. “Any near-term tax increases or reductions in transfer payments would hit consumers at a difficult time and could act as a drag on an already feeble expansion.”

Charts source: iShares

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.