Should ETF Investors at all Worry About Slowing U.S. Economy?
The US economy grew at an annualized pace of 1.1% during the first quarter of 2023, falling short of consensus forecasts of 1.9% surveyed by Bloomberg. The Bureau of Economic Analysis’ advance estimate of Q1 gross domestic product (GDP) highlighted a slowdown in wholesale trade, machinery, equipment, supplies, and manufacturing, as well as a decline in single-family construction, contributing to the lower growth rate. However, growth in consumer spending in goods and services helped keep annualized growth positive for the quarter.
The deceleration in GDP growth is consistent with other recent economic indicators, along with a decline in consumer confidence towards the economy. Several business executives have observed a decline in demand within their respective industries, while retail sales in March fell below anticipated levels. These factors cast doubt on the durability of future economic expansion, as noted by John Leer, the Chief Economist at Morning Consult, as quoted on Yahoo Finance.
Is Recessionary Fear Exaggerated?
The report’s findings suggest that certain sectors will benefit while others will struggle as a result of the slower economic growth. The following sectors could potentially be winners. Let’s delve a little deeper.
Healthcare spending led services, indicating that the sector could continue to see growth despite the economic slowdown. Health Care Select Sector SPDR ETF XLV justifiably has a Zacks Rank #1 (Strong Buy).Moreover, with the potential for a recession in the back half of 2023, investors may want to consider defensive sectors such as healthcare.
The decline in single-family construction contributed to the lower growth rate. But the single-family construction segment started showing improvement since March. Single-family housing completions in March were up 2.4% above the revised February rate. Building permits and housing starts too were up 4.1% and 2.7% above the revised February print, respectively. iShares U.S. Home Construction ETF ITB should thus gain ahead. The likelihood of tighter credit conditions should not deter affluent buyers from owing single-family houses.
Food services and Accommodations
The leisure industry continues to be a good contributor to services. The leisure and hospitality industry has been actually driving U.S. job growth, indicating that the ebbing pandemic is leading consumers to shell out on leisurely activities and experiences. Investors should note forget that the personal saving rate increased in Q1 of 2023 to 4.8% from 4% in Q4 of 2022 despite inflation. AdvisorShares Restaurant ETF EATZ and AdvisorShares Hotel ETF BEDZ should thus be in focus.
Motor vehicles and parts led goods spending, putting First Trust S-Network Future Vehicles & Technology ETF CARZ in sweet spot. The sector is expected to witness revenue growth of 15.4% in Q1, after 24.4% growth in Q4, as per the Earnings Trends issued on Apr 26. Decent sales of Motor Vehicle & Parts and the price inflation of new cars have been palpable. Both factors indicate that the business conditions remained favorable for the auto industry (read: 6 Sector ETFs to Play for Revenue Growth Potential in Q1).
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Health Care Select Sector SPDR ETF (XLV): ETF Research Reports
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
First Trust S-Network Future Vehicles & Technology ETF (CARZ): ETF Research Reports
AdvisorShares Restaurant ETF (EATZ): ETF Research Reports
AdvisorShares Hotel ETF (BEDZ): ETF Research Reports
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