Consumers Are Gloomy, But Retail ETFs Say Otherwise

Includes: RTH, VCR, XRT
by: Tom Lydon

By and large, consumers are still pretty down in the dumps about the economy and the unemployment picture. But why, then, have retail ETFs surged as much as 14% year-to-date?

The Consumer Comfort Index is down seven points over the past two weeks to a new low for this year and it’s barely above last year’s record low reached early last year. The unemployment picture stinks, millions haven’t been able to get their mortgages fixed and many are underwater on their homes. Judging by the numbers, consumers simply aren’t spending.

But retail ETFs are telling a different story, and retail sales are up 10% year-over-year. What the heck is going on here? A few things, actually, says Josh Lipton for Minyanville:

  • Retail spending may be getting a nice boost from double-digit growth in tax refunds.
  • Some homeowners have resorted to “strategic defaults,” which frees up money that would otherwise go to paying down a mortgage that the homeowner sees as no longer making financial sense.
  • Purchasing power is gradually moving higher, and some think it will continue to do so.
  • Consumers may simply just want to feel better, and buying things like flat-screen TVs could cheer almost anyone up. In fact, consumers are buying more gadgets, toys and clothes than in recent memory.

  • Vanguard Consumer Discretionary (NYSEARCA:VCR)

  • Retail HOLDRs Trust (NYSEARCA:RTH)

Disclosure: None