Consumers Paying More at the Pump, Saving Less

One takeaway from this week’s full slate of U.S. economic reports is that energy ETFs should be on investment advisors’ radars. Here’s why. 

The monthly producer price index for August increased by 0.7%, much higher than economists’ 0.4% expectation and the largest gain in that important measure since June of last year.  

While the core version of PPI rose only 0.2%, matching estimates, retail sales surged by 0.6% in August, painting a completely different picture versus the estimated 0.1%.  

Thursday’s data and recent market action all lead to one conclusion: Increased energy prices are occurring just as consumers have nearly finished spending down savings accumulated during the pandemic. A 26% savings rate in March 2021 has sunk to 3.5% and may be poised to go to zero.  

Within the PPI figures was an increased cost burden from energy. That is affecting producers of goods now, which means consumers see it in higher gas and heating prices as well as in the costs of products they buy. ETF investors see it through the surging price of oil, which has both fundamental and technical strength at the present time.  

Oil ETFs Stand to Benefit 

ETF investors have many ways to participate in the rise of the price of oil through funds that closely follow the price. The can invest in the ProShares K-1 Free Crude Oil Strategy ETF (OILK), own major U.S. oil stocks through the Energy Select Sector SPDR Fund (XLE) or even comb an oil ETF with covered call writing, which is what the Credit Suisse X-Links Crude Oil Shares Covered Call ETN (USOI) does. 

Oil potentially sets up to be the glue to the economic puzzle over the next several months, as consumers face double trouble from evaporated savings and sustained higher energy costs. Watch out for those canaries disguised as oil trucks.