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Retail Sales Growth Could Signal More Rate Hikes

This article was originally published on ETFTrends.com.

The latest U.S. economic data revealed by the Department of Commerce showed an increase in retail sales in June, signaling that continued growth could make way for more interest rate hikes to come before the end of 2018.

During the month of June, retails sales grew 0.5%, which, when paired with the 1.3% growth during the month of May, supports the continued boost in spending. In the past 12 months, retails sales have increased by 6.6%, touching slightly above the long-run average since 1980.

Furthermore, retail sales have climbed steadily the last five years, almost touching the 2% mark in the tail end of 2017.


Source: tradingeconomics.com

Part the increase in June can be attributed to rising gas prices--a 1% increase in June and up 21.6% in the past year. Furthermore, continued growth came as a result of a 0.4% increase in auto sales during the month of June following a 1.4% increase in May.

Related: Overheating Ahead: The Economy by Itself is Heading for Higher Inflation

Overall, the retail sale increases matched economists' estimates for the month of June, showing signs that interest rate hikes could be looming should the current economic activity sustain or exceed the pace of growth.

"Real consumption growth looks to have rebounded from 0.9% annualized in the first quarter to around 3% in the second, with overall GDP growth close to 4%," said Andrew Hunter, U.S. Economist at Capital Economics. "With jobs growth strong, wage growth starting to pick up and the tax cuts still supporting disposable incomes, we expect consumer spending to continue expanding at a 2.5% to 3.0% annualized pace in the second half of this year."

Floating Rate Fixed-Income ETFs to Benefit

Fixed-income investors can look to ETFs that invest in debt with a floating rate component--one that moves in lockstep with short-term interest rate adjustments. One such ETF to watch is the  iShares Floating Rate Bond ETF (FLOT) , which tracks the Bloomberg Barclays US Floating Rate Note < 5 Years Index.

The index has seen an uptrend, particularly given the Federal Reserve's last two interest rate spikes and hints that two more could come by the end of 2018.

Retail Sales Growth Could Signal More Rate Hikes 1

FLOT has already posted gains of 1.18% year-to-date, 1.90% the past year and 1.44% the last three years according to Yahoo! Finance performance numbers.

For more trends in fixed income, visit the Fixed Income Channel.

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