U.S. retail sales declined for the third straight month in February, as consumers cut back on purchases of motor vehicles and other expensive items, indicating a potential drop in GDP in the first quarter. Out of the 13 major sectors, seven reported declines (read: Will Wall Street Hit the Brakes in 2019? ETFs to Play).
Retail sales data is going to play along with the market’s expectations of the previously expected three rate hikes in 2018, after muted inflation data reported earlier this week alleviated fears of more aggressive rate hikes by the Fed. Consumer prices increased 2.2% year over year in February, up from 2.1% reported in the previous month.
Into the Headlines
Overall retail sales declined 0.1% in February compared with expectations of a gain of 0.3% after 0.1% drop in the prior month and December. This was the first time since April 2012 that retail sales have declined for three consecutive months. Excluding automobiles, gasoline, building materials and food services, core retail sales increased 0.1% in February after staying unchanged in January. Core retail sales are most closely aligned with the consumer spending component of GDP (read: 3 ETFs to Benefit as Faster Rate Hike Worries Cool Down).
Consumer spending accounts for over two-thirds of the United States’ GDP and seems to have slowed in 2018. It grew 3.8% year over year in the fourth quarter of 2017 but tepid wage growth in February might have dented purchasing power. Average hourly earnings in the United States inched up 0.1% in February compared with 0.3% in the previous month.
In February, auto sales declined 0.9%, after a similar drop in January, and receipts at gasoline stations declined 1.2%. However, sales at building material stores increased 1.9% in the month while receipts at clothing stores gained 0.4% and sales at online retailers rose 1.0%.
Let us now discuss a few ETFs focused on providing exposure to the sectors impacted.
First Trust NASDAQ Global Auto Index Fund CARZ
This fund focuses on providing exposure to the global automotive sector. A drop in auto sales in February might impact this ETF. It has AUM of $20.9 million and charges a fee of 70 basis points a year. The fund has a 20.0% allocation to the United States. It has an allocation of 8.3% to Toyota, 8.2% to Honda and 8.1% to Daimler AG. The fund has returned 16.5% in a year. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
PowerShares Dynamic Building & Construction Portfolio PKB
This fund is a popular ETF focused on providing exposure to the U.S. building and materials construction sector. Strength in building material stores might lead to gains in this ETF.
It has AUM of $317.5 billion and charges a fee of 63 basis points a year. The fund’s top three holdings are AAON Inc AAON, PulteGroup Inc PHM and Lennar Corp LEN, with 5.6%, 5.2% and 5.2% allocation, respectively. The fund has returned 8.9% in a year. It has a Zacks ETF Rank #3 with a High risk outlook.
United States Gasoline Fund UGA
This fund focuses on providing exposure to a widely used commodity, gasoline. Weakness in gasoline receipts might negatively impact this ETF. It has AUM of $44.8 million and charges a fee of 75 basis points a year. The fund has returned 19.9% in a year.
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AAON, Inc. (AAON) : Free Stock Analysis Report
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
US GAS FUND LP (UGA): ETF Research Reports
PWRSH-DYN BLDG (PKB): ETF Research Reports
FT-NDQ GL AUTO (CARZ): ETF Research Reports
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