Minimum wage has been a contentious issue in the U.S. as the presidential election heats up. However, the extra income could go a long way in consumer sectors and related exchange traded funds.
U.S. businessman Donald Trump, the leading Republican presidential candidate, said that he would not back a higher minimum wage for American workers, Reuters reported.
“Having a low minimum wage is not a bad thing for this country,” Trump said. “We can’t have a situation where our labor is so much more expensive than other countries’ that we can no longer win.”
Meanwhile, a growing segment of America is calling for higher minimum wages across the government after years of stalled efforts. The national minimum wage has been set at $7.25 per hour since 2009, and changes would require the sport of the Republican-controlled Congress.
A number of research has pointed to improved economic conditions from higher wages. For instance, in a 2011 study by the Chicago Federal Reserve, the author found that for ever dollar increase in minimum wage, a worker’s household added $2,800 in new consumer spending over the following year.
When the federal minimum wage was first introduced in 1938, the government’s goal was to maintain a wage floor to keep Americans out of poverty and stimulate the economy through spending.
With greater minimum wage and more free money to spend, Americans may be able to spend, which may help boost a range of consumer-related sectors.
For instance, the PowerShares Dynamic Food & Beverage Portfolio (NYSEArca: PBJ) follows US food and beverage companies, such as Monster Beverage (NYSE: MNST), Kraft Heinz Co (NYSE: KHC) and Starbucks (NYSE: SBUX).
People may enjoy more experiences such as hotels and restaurants. The PowerShares Dynamic Leisure and Entertainment Portfolio (NYSEArca: PEJ) could also benefit from the increased outings as the ETF focuses on leisure and entertainment services like airliners, Walt Disney (NYSE: DIS) and Marriott International (NYSE: MAR).
Additionally, the investors could also watch the consumer discretionary sector for improved spending trends, such as the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), First Trust Consumer Discretionary AlphaDEX Fund (NYSEArca: FXD) and Vanguard Consumer Discretionary ETF (NYSEArca: VCR). XLY tracks consumer discretionary stocks from the S&P 500. The smart-beta FXD follows an enhanced index that selects stocks based on value and growth factors, but the ETF may been seen as more value-oriented than other discretionary ETF options. VCR is much more diversified, including large-, medium- and small-cap stocks in the discretionary space.
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