While consumption was muted over the first half of the year, consumer spending could begin to support the retail sector and related exchange traded funds in the second half.
The retail sector has kept pace with the broader equities market so far this year. Year-to-date, the Market Vectors Retail ETF (NYSEArca: RTH) gained 5.5% and SPDR S&P Retail ETF (NYSEArca: XRT) rose 4.0% while the S&P 500 Index increased 3.4%.
However, Liz Dunn, founder and CEO of Talmage Advisors, argued that the year for retail is looking like a “tale of two halves” as sector outlook improves on wage inflation, reports Michelle Fox for CNBC.
“The first half was weather wasn’t cooperating, we had the port situation on the West Coast that made inventory difficult to get,” Dunn told CNBC.
Looking at the second half of the year, there are signs of positive economic developments for consumers and for retailers as we head into the the traditional holiday shopping seasons.
“The last couple months have looked really good in terms of wage inflation, and we’re hearing these big companies out there raising wages and I think all of that plays very well for the consumer,” Dunn added.
The government recently announced employers added a robust 280,000 new jobs in May, well above the monthly average.
According to the latest Duke University/CFO Magazine Global Business Outlook Survey, U.S. chief financial officers expect continued growth in employment and wages, with expectations at their highest since 2007, Duke reports. Specifically, U.S. companies expect wage hikes of over 3% in the next year and increased hiring by over 2%.
The improving economic conditions are translating into improved retail sales. In May, households increased purchases of automobiles and a range of other goods, with retail sales increasing 1.2% in May, Reuters reported.
Market observers also believe the high savings rate, rising home prices and tightening labor market to keep consumer spending fairly strong in the coming months ahead.
Market Vectors Retail ETF
For more information on the retail sector, visit our retail category.
Max Chen contributed to this article.