U.S. retail sales growth momentum moderated at the end of the year with two back-to-back months of a less-than-expected jump. Sales in December grew 0.6% last month sequentially, after an upwardly revised 0.2% rise in November but fell short of market expectations of 0.7% growth. Investors should note that the revised November reading also came in below market expectations of a 0.3% (read: December ETF Scorecard).
With this, retail sales jumped 3.3% in 2016 compared with last year’s gains of 2.3%. Despite the fact that retail sales growth missed expectations in the all-important holiday shopping month, two areas – auto sales and online shopping – delivered nice surprises.
Sales for motor vehicles and parts grew 2.4% following a 0.2% decline in November, gasoline stations saw a 2% uptick in sales versus no growth in November and non-store retailers witnessed 1.3% sales growth following a 0.3% nudge up in November. However, categories like clothing, food services and drinking places and electronics were dampeners in December.
While raging stock market gains and an increase in wages – which touched a seven-year high in December – helped people binge on retail buying, less-than-expected expansion points to still-cautious consumer sentiment (read: ETFs & Stocks Set to Benefit from December Job Data).
Average hourly wages grew 10 cents to $26 in December to translate into a 2.9% annual jump after sliding in the prior month. Consumer confidence in January surged to around a 12-year high as the economy is expecting Trump-promised tax cuts, a fiscal boost, easing regulations and more job creation. However, December sales growth indicated that the economy is yet to see the full surge in consumer sentiments translating into further spending.
The market reaction to December retail data was however was mixed on sector ETFs. SPDR S&P Retail ETF XRT and VanEck Vectors Retail ETF RTH gained respectively about 0.09% and 0.12% on January 13 following the release of retail sales data, but PowerShares Dynamic Retail ETF PMR was off about 0.23%.
Lately, Macy’s M, Kohl’s Corp. KSS and J.C. Penney reported a decline in holiday sales and lost about 0.3%, 1.3% and 2.6% on January 13, respectively. The latest pool of data points, both corporate and government, showed that department stores are losing appeal and online stores are gaining traction.
Sales at all U.S. retailers rose 4.4% year over year in December on an unadjusted basis. But spending at department stores declined 7.2%, representing the 23rd successive month of year-over-year drops.On the other hand, non-store retailers recorded a 10.4% surge, marking the sixth month of double-digit increase in 2016. So, it is more of a trend shift in purchases rather than softer year-end sales (read: Ten Predictions for the ETF Industry in 2017).
Against such a backdrop, below we highlight two ETFs to make the most of U.S. retail sales growth.
Amplify Online Retail ETF IBUY
This fund could be an intriguing bet givena 11% surge in spending at online retailers last year compared with a 6% decline in department stores. the fund added about 1.2% on January 13, 2017 (read: ETFs to Ride on Amazon's Best Ever Holiday Season).
PowerShares DWA Consumer Cyclicals Momentum Portfolio ETF PEZ
With improving economy and the prospect of rising inflation, cyclical sectors should do well. The fund puts 35% weight in specialty retail followed by hotels and restaurants (15.4%) and Internet and direct marketing retail (13.1%). The fund added about 0.2% on January 13 (see all consumer discretionary ETFs here).
We also picked two retail stocks on the basis of a VGM Style Score of ‘A’ or ‘B’ and a Zacks Rank #1 (Strong Buy), at the time of writing. Our chosen stocks are:
La-Z-Boy Incorporated LZB
Furniture sales grew 0.5% in December compared with a flat November. As a result, this Zacks Rank #1 stock with a VGM score of ‘B’ can be a good pick. The company is one of the largest furniture makers in the U.S. The stock was up over 1% on January 13, 2017.
America's Car-Mart Inc. CRMT
With motor vehicles being the key point in the December retail sales report, thisZacks Rank #1 company, which operates automotive dealerships is our chosen pick. It has a VGM score of ‘B’ and the Zacks industry rank is within the top 17%. The stock added about 6% on January 13.
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