As a pioneer in retail business, the United States provides ample growth opportunities for all types of retail companies. From growth perspective, retail ranks among the dominant U.S. industries and employs an enormous workforce. Retail sales represent approximately 30% of consumer spending, which itself accounts for more than two-thirds of the economy.
The U.S. economy is sending out signals of growth driven by lower oil prices and an improved job market. In July, 215,000 people were hired, reflecting improved employment prospects. According to the recent data from Bureau of Labor Statistics, the unemployment rate for July was constant at 5.3% reached in the previous month, its lowest level since Sep 2008.  (Read: A Look at Cheap Retail ETFs Post Q2 Earnings)
This improvement in the job scenario is likely to boost consumer confidence and provide them with a sense of security when it comes to purchasing power, thereby increasing consumer spending. According to a recent Conference Board data, the Consumer Confidence Index rebound in August increased to 101.5 from July’s reading of 91.0.
Moreover, consumer spending increased 3.1% in the second quarter from the initial estimate of 2.9%, and also improved considerably from the first quarter’s spending rate of 1.8%. July retail sales growth of 0.6% also validates the pickup in consumer activity. (Read: 3 Sector ETFs for Revenue Growth Potential)
Additionally, real GDP expanded at a 3.7% seasonally adjusted annual rate in the second quarter of 2015, according to the “second” estimate released by the Bureau of Economic Analysis. This fared way better than the “advance” estimate of a 2.3% increase and 0.6% growth recorded in the first quarter. The positive revision in GDP numbers reflects a rise in consumer spending, higher business spending, increased investment in intellectual property products and larger inventory levels at businesses.
An expected rebound in the economy, combined with declining unemployment rate, cheap gasoline prices, higher consumer confidence and improving consumer spending, the retail space is bubbling with optimism.
Playing the Sector through ETFs
ETFs present a low-cost and convenient way to get a diversified exposure to this sector. Below we have highlighted a few ETFs tracking the industry:
SPDR S&P Retail (XRT – ETF report):
Launched in Jun 2006, SPDR S&P Retail (XRT – ETF report) is an ETF that seeks investment results corresponding to the S&P Retail Select Industry Index. This fund consists of 103 stocks, the top holdings being Netflix Inc. (NFLX), Inc. (AMZN) and Casey’s General Stores Inc. (CASY), representing asset allocation of 1.33%, 1.29% and 1.22%, respectively, as of Aug 28, 2015. The fund’s gross expense ratio is 0.35%, while its dividend yield is 1.04%. XRT has $1,118 million of assets under management (AUM) as of Aug 31, 2015.

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