Cheap Oil, Improved Labor Market Supporting Consumer Sector ETFs | ETF Trends

Consumer sectors and related exchange traded funds are being supported by stronger fundamentals as the U.S. economy picked up pace in the second quarter on robust consumer spending,

Year-to-date, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) rose 11.2%, Vanguard Consumer Discretionary ETF (NYSEArca: VCR) increased 9.6% and iShares US Consumer Services ETF (NYSEArca: IYC) gained 9.1%. Meanwhile, the S&P 500 index was up 3.6% so far this year.

Bolstering the consumer sector, Americans are loosening their wallets and spending more. The Commerce Department revealed that the gross domestic product expanded a 2.3% annual rate in the second quarter after consumer spending, which accounts for two-thirds of economic activity, grew at a 2.9% rate from a 1.8% rate in the first quarter, reports Lucia Mutikani for Reuters. [Consumer Discretionary ETFs: Americans Will Begin to Spend More]

With cheaper gasoline prices, households were able to allocate more to shopping early this year. Oil prices have plunged 50% year-over-year, and the cheaper oil has translated to cheaper gasoline for Americans. Crude oil has fallen off, but the low prices have not been entirely reflected in gasoline futures, which have fallen off 37%, so consumers may enjoy cheaper gasoline prices ahead during the peak summer season.

“The composition of growth is changing, at least in part because of the drop in oil prices,” Scott Hoyt, economist at Moody’s Analytics, told the Wall Street Journal. “This is beginning to support consumer spending, but is undermining net exports and investment, at least in select industries.”

Additionally, the improved labor market also spurred consumers to spend.