The strength in retail and consumer sector exchange traded funds belie the growing pessimism among Corporate America.
Retail and consumer sector ETFs, such as the SPDR S&P Retail ETF (NYSEArca: XRT) and Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), along with the broader equities market, are reaching new highs and are attracting robust inflows, with XLY bringing in over $1 billion in assets over the past month. [Discretionary ETFs on the Comeback Trail]
The U.S. economy expanded a better-than-expected 4.2% over the second quarter while consumer spending was up 2.5% over the three month period, contributing to a 1.7 percentage point GDP gain, CNBC reports.
Nevertheless, retailers are less sanguine about the prospects for U.S. consumption, with companies warning about a “challenged” state of the U.S. consumer.
“In North America, the overall retail environment in our category remained challenging, with soft traffic and permanent promotion in a retail environment throughout most of the second quarter,” Paul Marciano, vice chairman and CEO of Guess’ Inc. (NYSE: GES), said.
Notably, low- and middle-income consumers are still struggling and have changed their buying habits. Many retailers are seeing a significant drop in purchases among low-income areas.
“Data now suggest that out of necessity, many folks have reduced their overall consumption, and absolute unit growth across Nielsen-measured channel data supports this,” Richard Dreiling, chairman and CEO of Dollar General (NYSE: DG), said.