Can Consumer Spending Lift the Economy?


It was a mixed bag for retailers in July, with sales gains in many back-to-school categories like clothing and sporting goods offset by declines in home-based categories like building materials and furniture stores.

According to the National Retail Federation (NFR) - the world's largest retail trade association - July retail sales (excluding automobiles, gas stations and restaurants) increased 0.3 percent seasonally adjusted from June and increased 5% unadjusted year-over-year.

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Retail and food services sales (which include non-general merchandise categories such as automobiles, gasoline stations, and restaurants) increased 0.2% seasonally adjusted month-to-month and increased 5.4% adjusted year-over-year.

The SPDR S&P Retail ETF (NYSEARCA:XRT) has risen a sizzling 30.5% year-to-date and is easily outperforming the S&P 500 (NYSEARCA:IVV) by around 15%. Other consumer focused ETFs like the Select Sector Consumer Discretionary SPDR (NYSEARCA:XLY) and the Market Vectors Retailers ETF (NYSEARCA:RTH) have outperformed too. The quarterly blended year-over-year retail sales growth is 2.9% for Q2, which marks a rebound from the 0.1% growth achieved in Q1 2013, according to FactSet.

Can the streak of 13 consecutive monthly gains in retail sales continue?

Obstacles for consumer spending are high nationwide joblessness (14%/U-6 figure), sluggish personal income growth (real disposable income growth has averaged less than 1.5% year-over-year since 2010), and a labor force participation rate that is at its lowest level since 1979.

"Consumers alone can't be expected to shoulder the burden of the economy. Fiscal and monetary policy uncertainties combined with stagnant economic and employment conditions continue to breed a volatile market with extreme swings in consumer spending. The economy can't seem to maintain any amount of momentum. We just can't seem to pull ourselves up," said NRF President and CEO Matthew Shay.

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