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Less-Than-Expected Growth Could Affect Retail ETFs in 2019

This article was originally published on ETFTrends.com.

The National Retail Federation (NRF) is projecting retail sales figures to grow from 3.8 to 4.4 percent, which is lower than the 4.6 percent growth experienced in 2018--something investors should take note of with respect to retail-focused exchange-traded funds (ETFs).

ETFs to keep an eye on are the  SPDR S&P Retail ETF (XRT) ,  Amplify Online Retail ETF (IBUY) and VanEck Vectors Retail ETF (RTH) . XRT is up 8 percent year-to-date, while IBUY is up almost 18 percent and RTH is 7.6 percent higher YTD.

Whether it hurts the ETFs will depend on how the market interprets the data, but the NRF says the forecast comes "despite threats from an ongoing trade war, the volatile stock market and the effects of the government shutdown."

The 35-day government shutdown prevented the release of December's retail sales data from the Commerce Department. According to the NRF, sales this year should total more than $3.8 trillion--a figure that does not include sales from automobile dealers, gasoline stations and restaurants.

The NRF numbers showed a continuing trend of growing online sales as consumers shift from brick-and-mortar stores to the internet. Online and non-store sales rose 10.4 percent higher last year and the NRF is predicting more of the same for 2019.

“More people are working, they’re making more money, their taxes are lower and their confidence remains high,” NRF President and Chief Executive Matthew Shay said in a statement.

“The biggest priority is to ensure that our economy continues to grow and to avoid self-inflicted wounds. It’s time for artificial problems like trade wars and shutdowns to end, and to focus on prosperity not politics,” he added.

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Robust Employment a Key Driver While the lesser-than-expected growth doesn't appear encouraging, NRF Chief Economist Jack Kleinhenz did cite strong employment as a key driver for the retail sector moving forward. Job growth during the month of January bested expectations as nonfarm payrolls gained 304,000, according to the latest data from the Labor Department.

"Most important for the year ahead will be the ongoing strength in the job market, which will support the consumer income and spending that are both key drivers of the economy," said Kleinhenz. "The bottom line is that the economy is in a good place despite the ups and downs of the stock market and other uncertainties."

Future challenges, however, will be the ongoing trade war between the U.S. and China, unless the two largest economies can come to a permanent trade deal that's beneficial for both sides. In the meantime, more tariffs could possibly hurt sales on cotton-based clothing while the broad U.S. economy could also slow down, causing consumers to pare down spending.

For more information on the consumer sector, visit our consumer discretionary category.