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December 20, 2012

Consumers Get Upbeat

How important are consumers to the economy? Very important, as any economist worth their salt will admit. And despite big fiscal problems in Washington D.C., U.S. consumers are not only feeling better, but showing it. 

Consumer confidence in November rose to 73.7—its highest reading in four years, according to the Conference Board. 

An uptick in home prices has helped lift consumers’ mood. Property values in the S&P/Case-Shiller 20-City Index advanced 3% from September 2011. Mortgage rates are still at multi-decade lows and home affordability has improved.    

Stocks within the S&P 500 linked to consumer spending have been hot performers. The Consumer Discretionary SPDR (XLY) has climbed 21.02% while the Consumer Staples SPDR (XLP) is ahead by 11% year-to-date.

XLY owns stocks linked to consumer durables, apparel, hotels, restaurants, leisure, media and retailing. Top stock holdings include Amazon.com, Home Depot and Starbucks.   

In contrast, XLP is the more defensive consumer focused ETF because it holds stocks covering food and drug retailing, beverages, food products, tobacco, household products and personal products. Top holdings include Coca-Cola, Procter & Gamble and Wal-Mart. 

Higher consumer spending has been driving returns in both sectors.   

The National Retail Federation reported that a record 247 million shoppers spent an average of $423 during the post-Thanksgiving Black Friday weekend compared to just $398 in 2011. 

Over the past few months, consumers have grown increasingly more upbeat about the current and expected state of the job market, and this turnaround in sentiment is helping to boost confidence,” said Lynn Franco, director of economic indicators at The Conference Board.

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