Consumer Spending Up Amidst Inflation and Disruptions

The U.S. Department of Commerce on Friday reported a 1.1% rise in consumer spending in March, with consumers spending more on travel and dining, as well as on gasoline and food. Personal income increased 0.5% from February, a slower rise than inflation, which rose 0.9% in March.

For the second month in a row, spending on durable goods declined, driven by lower spending on vehicles.

Overall annual inflation rose 6.6% in March from a year earlier, but when volatile food and energy costs were excluded, inflation rose 5.2% from the year prior.

“We think consumers are going to continue to rotate more toward services spending,” Kathy Bostjancic, chief U.S. economist at Oxford Economics, told the Wall Street Journal. Bostjancic added that she expects the rise in consumer spending to be sustainable despite the “obviously large headwinds facing the consumer right now,” including inflation and supply chain disruptions.

Inflation-adjusted consumer spending for the first quarter as a whole rose at its fastest pace since last spring, driven by spending on restaurant and healthcare.

This is bound to have huge implications for Invesco’s consumer-focused ETFs, including the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD B+), the Invesco S&P SmallCap Consumer Discretionary ETF (PSCD B), the Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS B), and the Invesco S&P SmallCap Consumer Staples ETF (PSCC C+). All of those ETFs track S&P indexes. Invesco also issues several other discretionary and staples ETFs that don’t follow MSCI or S&P indexes, such as the Invesco DWA Consumer Staples Momentum ETF (PSL B).

RCD, which tracks the S&P 500 Equal Weight Consumer Discretionary Index, may be ideal for investors looking for more diversification and less concentration among consumer cyclical stocks because Amazon and Tesla loom large over cap-weighted ETFs addressing this sector. Combined, Amazon and Tesla currently make up nearly 43% of the cap-weighted index.

PSCD, which tracks the S&P SmallCap 600 Capped Consumer Discretionary Index, focuses exclusively on small-cap stocks in the consumer discretionary sector of the U.S. economy. This ETF may appeal to investors building a long-term, buy-and-hold portfolio and may be useful for those looking to establish a tactical tilt towards the consumer discretionary sector.

RHS, which follows the S&P 500 Equal Weight Consumer Staples Index, holds 32 stocks and is less concentrated than cap-weighted consumer staples ETFs. For example, Lamb Weston is the largest component in RHS and commands a weight of 3.53%.

PSCC seeks to track the investment results of the S&P SmallCap 600 Capped Consumer Staples Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index, which is designed to measure the performance of securities of small-capitalization U.S. companies in the consumer staples sector, as defined by the Global Industry Classification Standard.

PSL is based on the Dorsey Wright Consumer Staples Technical Leaders Index. The fund will normally invest at least 90% of its total assets in the securities that comprise the index, which is designed to identify companies that are showing relative strength (momentum) and is composed of at least 30 securities from the Nasdaq U.S. Benchmark Index. This ETF is potentially useful for those employing a sector rotation strategy or for investors looking to tilt their portfolios towards a low beta sector that can perform relatively well in down markets.

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