Rising Fuel Prices, Falling Consumer Confidence Spell Trouble For Retail ETFs

The ETF PowerShares Dynamic Retail (PMR) is up 0.1% this year, reflecting a closed-wallet for most American consumers. Top holdings for this ETF include Safeway (SWY) -6%, Kohl's (KSS) -6% and Sears (SHLD) -5%. Reports confirm the U.S. consumer has slowed down, as confidence dropped to a seven-month low in April.

Concerns about rising fuel prices, inflation and home values have intensified. Heather Burke for Bloomberg reports last month U.S. retailers posted the biggest sales decline on record, and a small portion of this is due to Easter sales falling into the month of March.

Rising gas prices are starting to have an effect on the American consumer. The nationwide average is $3.10 per gallon and it's only 2 cents away from the inflation adjusted high in 1981, reports Moira Herbst for BusinessWeek.. Although retail stores have seen emptier parking lots and slower sales, the ripple effect on the economy is slow, but with a sluggish housing market, the decline is still downward.

First quarter sales at Home Depot dropped 7.6% from the same time last year, while gross and net profit margins are shrinking. Jeffrey R. Kosnett for Klipinger reports now that homebuilding and remodeling have slowed down, streams of contractors flowing through the front doors of Home Depot have stopped. Retail HOLDRs (RTH) is up 4% this year, and holds Home Depot (HD) -15%, Target (TGT) -9% and Wal-Mart (WMT) -17%.

RTH vs. PMR 1-yr chart: