Although it is hard to say that the US economy is in a sustainable recovery, there are plenty of signs showing that economic growth is accelerating, paving the path to opportunity for the Retail HOLDRs (NYSE:RTH), the PowerShares Dynamic Retail (NYSE:PMR) and the First Trust Dow Jones Internet Index (NYSE:FDN).
The most promising and upbeat news recently came from a decline in new applications for jobless claims in the week ending November 20, 2010. The 407,000 applications were far lower than expected and is aiding in easing concerns about job security and income growth. This can further be supported by an increase in personal spending, which jumped to 0.4% in October, marking the fourth consecutive month of increased consumer spending.
As for income growth, wages and salaries witnessed there largest jump in five months, increasing 0.6% while personal income jumped 0.5% in October. This, in conjunction with non-existent inflation, is expected to increase purchasing power which is resulting in improved consumer sentiment. According to the University of Michigan/Reuters consumer sentiment index increased to a 71.6 from 67.7, the highest level in nearly 20 months.
To further support the notion that the US economy is in growth mode, many suggest that, aggregately, Americans have increased their credit-card debt for the first time in nearly two-years in such a manner that is consistent with increases in household income. The consumer is such a critical factor in US economic growth because consumer spending constitutes nearly 70% of US GDP.
As mentioned above, three ETFs influenced by accelerated economic growth include:
- Retail HOLDRs (NYSE:RTH), which allocates a significant portion of its assets to Wal-Mart (NYSE:WMT), Amazon (NASDAQ:AMZN) and Target (NYSE:TGT).
- PowerShares Dynamic Retail (NYSE:PMR), which allocates a significant portion of its assets to Bed Bath & Beyond (NASDAQ:BBBY), Limited Brands (NYSE:LTD) and Costco Wholesale Corp. (NASDAQ:COST).
- First Trust Dow Jones Internet Index (NYSE:FDN), which boasts Amazon, eBay (NASDAQ:EBAY) and Priceline (NASDAQ:PCLN) as top holdings, all internet-based companies that are highly correlated with increased consumer spending.
Written By Kevin Grewal From ETF Tutor Disclosure: No Positions
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.