As expected, the government shutdown started wreaking havoc on the U.S. economy. Consumer sentiment fell to its lowest level since before the U.S. presidential election in 2016 thanks probably to the longest-ever government shutdown.

The University of Michigan consumer sentiment index dropped to 90.7 in January — its lowest since October 2016 — from 98.3 in December, preliminary data showed. The data missed economists’ expectations of a reading 96.4. An index tracking consumers’ view of current economic conditions slipped to 110 from 116.1, while the consumer expectations index backtracked to 78.3 from 87, as quoted on Financial Times.

Partial government shutdown is expected to be one of the prime headwinds as it could cut job growth by as much as 500,000 in January and push up the unemployment rate above 4.0%, per Reuters. The absence of no pay right now for around 800k furloughed workers could weigh on consumer activity.

Internal Revenue Service (IRS) is also likely to process tax refunds slower with a reduced workforce, another deterrent to consumer purchases (read: Longest U.S. Government Shutdown: Likely ETF Winners & Losers).

Also, the chief economist for the Surveys of Consumers believes that indirect factors like trade tensions and global market slowdown led consumers to think “that these events would have a negative impact on Trump’s ability to focus on economic growth.” The outlook for the year-ahead is at its worst since mid-2014.

Thanks to such subdued readings about consumer sentiments, companies related to consumer goods may see a slump in their first-quarter sales. Economists forecast a slowdown in growth rate this year. Macroeconomic Advisers cut its forecast for Q1 to 1.4%, reflecting government shutdown, from 2.8% growth rate expected for Q4 of 2018, as quoted on Wall Street Journal. This, in turn, could weigh on consumer ETFs.

Against this backdrop, investors can keep a tab on consumer ETFs like Invesco S&P SmallCap Consumer Discretionary ETF (PSCD Quick QuotePSCD - Free Report) , John Hancock Multi-Factor Consumer Discretionary ETF , First Trust Consumer Discretionary AlphaDEX Fund (FXD Quick QuoteFXD - Free Report) , iShares Evolved U.S. Consumer Staples ETF and Consumer Staples Select Sector SPDR Fund (XLP Quick QuoteXLP - Free Report) .

Any Ray of Hope?

Per the chief U.S. economist at High Frequency Economics, consumer sentiment index was also hard hit in 2013’s government shutdown but it soon rebounded once the government reopened, as quoted on Wall Street Journal. We expect this to happen this year also.

Moreover, the Fed has come up with dovish comments of late and indicated that it will adopt a patient approach on the monetary policy. This should keep the markets charged up in the near term (read: Dovish Fed Minutes Should Boost These ETFs).

Added to this, both China and the United States are tiptoeing toward a trade resolution. China in fact proposed U.S. trade negotiators a six-year boost in imports. As a result, if the duo makes it work on the trade front, consumer sentiments should bolster, demand for U.S. consumer goods would rise and both factors will drive the related ETFs higher (read: U.S., China to Reach a Trade Deal? ETF Areas to Gain).

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