U.S. retail sales declined 1.9% sequentially in December 2021, marking the biggest fall since February 2021 and ending four successive months of strong growth. A spike in inflation and early holiday shopping (well before Thanksgiving Day) in apprehension of shipping delays led to the slump. As a result, retail sales for October were revised up slightly. The sales growth in December came in well below market expectations of 0.8%.

Consumer spending makes up about 70% of U.S. economic activity. Thus, any massive slump in it will likely dim the economic growth prospects. Below we highlight a few areas and the related ETFs that should stay afloat despite the subdued December retail sales.

Miscellaneous Store Retailers

This was the brightest sales growth area. Sales grew 1.8% sequentially in December and 20.6% year over year. If job data remains stable and rates remain at moderately low levels, consumers may continue to splurge on activities. However, volatility should remain in place on COVID fears.

Consumer Discretionary Select Sector SPDR ETF XLY thus looks to be a great pick. The underlying Consumer Discretionary Select Sector Index of the fund seeks to provide an effective representation of the consumer discretionary sector of the S&P 500 Index.

The Zacks Rank #3 (Hold) Bath & Body Works BBWI falls in the Miscellaneous retailers’ category. It is a specialty retailer and home to America's Favorite Fragrances, offering exclusive fragrances for the body and home, fragrance mist, body lotion and body cream, 3-wick candles, home fragrance diffusers and liquid hand soap.

Health & personal care stores

Spending at health and personal care stores was up 0.5% sequentially and 8.4% year over year.

Global X Health & Wellness Thematic ETF BFIT can be played to tap this segment. The underlying Indxx Global Health & Wellness Thematic Index tracks the performance of companies listed in developed markets that provide products and services aimed at promoting physical wellness through active and healthy lifestyles, including but not limited to fitness equipment and technology, athletic apparel, nutritional supplements, and organic/ natural food offerings. It charges 50 bps in fees (read: Millennials to Inherit as Much as $68TN? ETFs to Gain).

Zacks Rank #3 (Hold) ColgatePalmolive CL looks to be a great bet. ColgatePalmolive’s business strategy closely defines efforts to increase its leadership in key product categories through innovation in core businesses, tracking adjacent categories growth and expansion into new markets and channels.

Building Material & Garden Equipment & Supplies Dealers

The segment Building Material & Garden Equipment & Supplies Dealers saw a 0.9% sequential gain in sales. Moreover, the segment’s sales were 12.5% higher year over year.

As far as the ETF is concerned, broad-based retail ETFs like XLY and VanEck Retail ETF RTH should fit the bill.

Zacks Rank #2 (Buy) Central Garden & Pet CENT may win from this trend. Central Garden is looking forward to strengthening its position as one of the leading companies in the U.S. pet supplies and lawn and garden supplies space.

Restaurants

Sales in food services and drinking places saw a slight decline of 0.8% in sales in December. The decline in sales was much lower than the other retail categories. Sales were up 41.3% year over year.

Restaurant stocks have exposure to AdvisorShares Restaurant ETF EATZ, so the fund stands to benefit.

As far as stocks are concerned, investors can bet on Zacks Rank #2 First Watch Restaurant Group FWRG. It is a daytime dining restaurant concept serving made-to-order breakfast, brunch and lunch using fresh ingredients.

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ColgatePalmolive Company (CL) : Free Stock Analysis Report
 
Central Garden & Pet Company (CENT) : Free Stock Analysis Report
 
VanEck Retail ETF (RTH): ETF Research Reports
 
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
Global X Funds Global X Health (BFIT): ETF Research Reports
 
AdvisorShares Restaurant ETF (EATZ): ETF Research Reports
 
Bath & Body Works, Inc. (BBWI) : Free Stock Analysis Report
 
First Watch Restaurant Group, Inc. (FWRG) : Free Stock Analysis Report
 
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