Is February Retail Sales Really Weak? ETFs to Benefit

Consumers spent at a slower-than-expected pace in February, although underlying data suggests that sales continued to grow at a solid rate despite concerns over an economic slowdown and rising inflation.

Retail Sales Increase Slightly

Retail sales rose by 0.2% in February, a rebound from the downwardly revised 1.2% decline in January. However, this fell short of the Dow Jones’ estimate of a 0.6% increase (quoted on CNBC), according to the Commerce Department’s advanced reading. Excluding auto sales, retail sales increased by 0.3%, aligning with expectations.

Retail sales increased by 3.1% compared to the previous year, outpacing the 2.8% rise in consumer prices as measured by the Consumer Price Index (CPI).

Relating Consumer Spending With Inflation

The reported sales figures are adjusted for seasonal factors but not for inflation. Since prices also rose by 0.2% during the month, as per a Labor Department report, consumer spending remained roughly in line with inflation.A key retail sales measure, the control group — which excludes volatile categories and directly contributes to GDP calculations — rose by 1%, surpassing expectations.

Economic Outlook and Expert Insights

Robert Frick, corporate economist at Navy Federal Credit Union, noted that while the report was not particularly strong, it remained in positive territory despite widespread consumer pessimism, as mentioned on CNBC. He emphasized that consumer income, the primary driver of spending, has been growing at a solid rate, with a notable surge in January.

GDP Growth Concerns

Some economic indicators, such as the Atlanta Federal Reserve’s GDPNow tracker, suggest that the economy may contract in the first quarter. However, the decent retail sales reading could prompt an upward revision in growth projections.

Sector ETF Winners

Online Sales

Nonstore retailers (e.g., online sales) saw a 2.4% sequential increase.

ProShares Online Retail ETF ONLN –The ProShares Online Retail Index is a specialized retail index that tracks retailers principally selling online or through other non-store channels. The fund charges 58 bps in fees.

Amazon.com AMZN – Amazon.com is one of the largest e-commerce providers, with sprawling operations in North America, now spreading across the globe. The fund has a Zacks Rank #3.

Healthcare & Personal Care Stores

Health and personal care sales rose 1.7% sequentially.

Consumer Staples Select Sector SPDR ETF XLP – The underlying Consumer Staples Select Sector Index seeks to provide an effective representation of the consumer staples sector of the S&P 500 Index. The fund charges 8 bps in fees.

KimberlyClark KMB – Kimberly-Clark Corporation is principally engaged in the manufacture and marketing of a wide range of consumer products around the world. The company sells its products to supermarkets; mass merchandisers; drugstores; warehouse clubs; variety and department stores; retail outlets; manufacturing, lodging, office building, food service, and healthcare establishments; and high-volume public facilities. The fund has a Zacks Rank #3.

Food & Beverage Stores

Food and beverage outlets reported a 0.4% sequential increase.

Fidelity MSCI Consumer Staples Index ETF FSTA – The underlying MSCI USA IMI Consumer Staples Index represents the performance of the consumer staples sector in the U.S. equity market. The fund charges 8 bps in fees.

Pilgrim's Pride PPC – Pilgrim's Pride Corporation is focusing on strengthening its Prepared Foods category. The category grew in the United States during the fourth quarter of 2019 on continued investments in R&D and sales, as well as marketing of new product innovations. Also, the company has been increasing its product mix for organic category, including No-Antibiotics-Ever products, to cater to customers' evolving tastes. The fund has a Zacks Rank #1 (Strong Buy).

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This article originally published on Zacks Investment Research (zacks.com).

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