Consumer Mood Improves (XLY, XRT, VCR, VDC, IYK)

Consumer sentiment rises in February for sixth straight month in a row.

Consumers are feeling better about the economy and their personal circumstances as sentiment rose to 75.3 from last month's reading of 75.

Expectations were also improved while the mood regarding current conditions declined.

The overall indicator beat analysts' expectations as ongoing high unemployment, high oil prices and the European debt crisis were largely ignored by the all important consumer sector which accounts for 70% of the U.S. economy.  While the gauge continues to improve, it is still well below normal readings during good economic times.

The report indicates that “inflation-adjusted personal consumption expenditures can be expected to grow by 2.3% in 2012.”

Director of the survey, Richard Curtin said, “Consumers have shrugged off concerns about rising gas prices, the European crisis, and election year politics, preferring to focus on the favorable impact of job growth. A potential threat is that consumers expect too much too soon. Improved job prospects may entice many more people to seek work, easily outstripping the number of new jobs created. While election year politics typically raise economic prospects, it may also increase the negative consequences if the promised gains fail to materialize. While growth prospects for consumer spending have improved, the new pace of gains may only edge up to a brisk walk, at best.”

At 75.3, the index is above January's reading but below last February's.

Read the full report

Important Consumer ETFs:

Consumer Discretionary Select Sector SPDR ETF XLY tracks the price and yield of the Consumer Discretionary Select Sector Index and the ETF was up 0.2% in morning trade and reaching overbought levels and so subject to a correction.

SPDR S&P Retail ETF XRT tracks the S&P Retail Select Industry Index and follows apparel, automotive, food and department store retail businesses. The ETF climbed 0.4% in morning trade and is in a consolidation pattern, up approximately 15% from December lows.

Vanguard Consumer Discretionary ETF VCR tracks the Morgan Stanley Capital International United States Investable Consumer Discretionary Index which includes industries like textiles, leisure, hotels, restaurants and media production. The ETF was mostly flat at noon Eastern time on Friday and is significantly overbought, indicating the likelihood of a correction ahead.

Vanguard Consumer Staples ETF VDC tracks the MSCI US Investable Market Consumer Staples 25/50 Index.

iShares Dow Jones U.S. Consumer Services Sector Index IYK tracks the Dow Jones U.S. Consumer Services Index.

Bottom line: The consumer makes up 70% of the U.S. economy and so good news in this sector is significant to sustain the ongoing economic recovery.  A forecast of  expanding consumer spending supports the thesis of continued economic growth, albeit slow growth, ahead.

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