Divergent Paths: How U.S. Core Retail Sales Shape Construction and Automotive Sectors

The U.S. Core Retail Sales report, a barometer of consumer spending excluding volatile categories like automobiles and gasoline, has long served as a proxy for economic health. Yet its implications for specific sectors—particularly Construction/Engineering and Automobiles—reveal a nuanced story. Recent data from 2025 underscores how retail sales surprises create divergent market impacts, demanding a strategic approach to sector rotation.

Core Retail Sales: A Tale of Resilience and Moderation

In the third quarter of 2025, U.S. Core Retail Sales rose 0.5% in July, 0.7% in August, and 0.2% in September, outpacing expectations in the first two months. While the slowdown in September signaled a moderation, the overall trend highlighted resilience in categories like nonstore retailing, clothing, and motor vehicle parts. This contrasted sharply with the struggles of construction and engineering sectors, which faced headwinds from elevated interest rates, labor shortages, and material cost inflation.

Automobiles: Resilience Amid Structural Headwinds

The automotive sector, though excluded from core retail metrics, remains a critical component of consumer spending. In August 2025, motor vehicle and parts sales rose 0.5% month-over-month, driven by pent-up demand and the expiration of federal EV tax credits. However, this growth was constrained by high prices (average new-vehicle prices hit $49,000 in August) and elevated auto loan rates, which remained above 10% in 2025.

Historical ETF returns for the sector reflect this duality. Over the past six months, the Consumer Discretionary Select Sector SPDR Fund (XLY), which includes automakers like Ford and Tesla, delivered a -3.7% return, underperforming the S&P 500. This underperformance was attributed to margin compression from tariffs and supply chain bottlenecks. reveals a rollercoaster trajectory, with sharp gains during retail sales surges but significant corrections during inflationary spikes.

Actionable Insight: Investors should adopt a cautious stance on automotive ETFs. While short-term retail sales surprises may boost sentiment, structural challenges—such as rising production costs and regulatory shifts—suggest underweighting the sector. Focus on EV-focused companies with strong balance sheets to hedge against volatility.

Construction/Engineering: A Sector at a Crossroads

The construction and engineering sector, though not directly tied to core retail sales, is indirectly influenced by consumer spending trends. For instance, residential construction activity in 2025 declined sharply, with single-family starts falling 11.7% year-over-year in August. High mortgage rates (averaging 6.5% in 2025) and material costs inflated by tariffs stifled demand. Conversely, nonresidential construction—particularly data centers and energy infrastructure—thrived, driven by AI adoption and government incentives like the Inflation Reduction Act.

Despite these pockets of growth, the sector's ETF landscape is sparse. No dedicated construction ETFs exist, but exposure can be gained through broad industrials funds like the Industrial Select Sector SPDR Fund (XLI). Historical performance of XLI in 2025 showed a 2.1% return, outperforming the automotive sector but lagging behind financials. This reflects the sector's mixed fortunes: while infrastructure projects benefit from long-term tailwinds, residential construction remains a drag.

Actionable Insight: For investors, construction/engineering offers a nuanced opportunity. Overweighting infrastructure-focused firms—especially those involved in data centers, renewable energy, and advanced manufacturing—can capitalize on structural demand. However, avoid residential construction plays until mortgage rates stabilize.

Sector Rotation: Aligning with Consumer Spending Trends

The key to navigating these divergent paths lies in sector rotation. When core retail sales surprise to the upside—indicating strong consumer demand—automotive ETFs may see short-term gains. Conversely, a slowdown in retail sales (as seen in September 2025) signals caution for automakers and highlights opportunities in construction sectors insulated from consumer cyclicalities.

would likely show a weak positive correlation, underscoring the need for a diversified approach. Investors should also monitor policy shifts, such as potential rate cuts in 2026, which could rejuvenate construction activity.

Conclusion: Strategic Diversification in a Fragmented Market

The U.S. Core Retail Sales data is a double-edged sword. While it signals robust consumer spending, its sector-specific impacts demand a tailored investment strategy. For automobiles, resilience is tempered by structural challenges; for construction, long-term growth is possible but uneven. By rotating between these sectors based on retail sales trends and macroeconomic signals, investors can navigate the fragmented landscape with precision.

In a market where consumer behavior is both a driver and a disruptor, the ability to pivot between construction and automotive sectors—leveraging their divergent trajectories—will define success in 2026 and beyond.