An unexpectedly weak October consumer sales dragged on retail-related exchange traded funds and potentially foreshadowed a slowdown in spending ahead of a typically strong period for the consumer sectors.
On Friday, the Market Vectors Retail ETF (NYSEArca: RTH) dipped 1.9%, SPDR S&P Retail ETF (NYSEArca: XRT) fell 2.9% and PowerShares Dynamic Retail Portfolio (NYSEArca: PMR) dropped 2.6%. Year-to-date, RTH gined 6.0%, XRT declined 7.5% and PMR decreased 3.4%. [Will Holiday Shopping Save Retail ETFs?]
The broader consumer discretionary ETF, Consumer Discretionary Select Sector SPDR (NYSEArca: XLY), which includes a 19.7% tilt toward specialty retail and 16.4% in internet & catalog retail, also retreated 1.6% Friday. XLY advanced 11.8% year-to-date.
Triggering a sell-off in the retail sector, U.S. retail sales increased less-than-expected in October on a surprise dip in automobile purchases, reports Lucia Mutikani for Reuters.
The Commerce Department calculated that retail sales was up 0.1% last month, compared to economists’ forecasts for an increase of 0.3%, after being unchanged in September. [America’s Less Dressed: 3 Factors Weighing On Retail ETFs]
“Even though we continue to expect personal spending to remain a key source of support for economic activity this quarter, this report does point to a very weak start to the quarter,” Millan Mulraine, deputy chief economist at TD Securities, told Reuters.
While many expected cheap gasoline prices to translate into increased spending, the weak sales report suggests that the savings are being used to pay for other necessities, such as higher rents.
Nevertheless, a strong labor market could lead to higher wages and support consumer spending in the fourth quarter.Separately, the University of Michigan’s consumer sentiment index was up to 93.1 in early November, compared to 90.0 in October.