For much of the last several months the attention of U.S. investors has been directed across the Atlantic, where various austerity plans, debt auctions, and credit downgrades have dominated the financial headlines and given direction to global equity markets. While the fiscal health of Europe has gradually deteriorated, several positive data releases over the last month have given investors hope that the U.S. recovery will remain on track; factory activity appears to be on the rise, signs of job creation (albeit temporary job creation) are emerging, and tame inflation reports have given increased flexibility to the Federal Reserve.

But perhaps a more telling forward indicator has popped up from a most unlikely source: demand for two-ply and "luxurious" toilet paper is on the rise, after plummeting in recent years as consumers slashed discretionary items from their budget. According to research provider RISI, industrywide tissue production is up 13% this year. In a recent earnings call, Procter & Gamble (NYSE: PG) noted that the high-end Charmin brand has seen strong sales growth, boosting the company's earnings this year. And Georgia-Pacific's new Quilted Northern Ultra Plush bath tissue recently earned the honor of "pacesetter" status from marketing research firm Symphony IRI Group after generating $125 million in sales in its first year.

So how on earth does all of this translate to a rosy economic outlook? It shows that consumers are willing to spend more money on household items, once again purchasing higher-end goods that had been cut from the budget in recent years. "Because people are literally flushing the money they spend on these products down the toilet, spending habits in this very personal area can reveal important clues about the financial health of shoppers," writes Anthony Mirhaydari. "And that reflects on the growth potential for the economy and the stock market as a whole."

It may not be advisable to make major investing decisions based solely on toilet paper demand. But if the willingness of the American consumer to spend more money on discretionary emerges as a trend, it could bode well for ETFs in the … Consumer Discretionary ETFdb Category. Below we outline several ETFs that fall into this particular category.

Consumer Discretionary Select Sector SPDR (XLY)
State Street's XLY follows the Consumer Discretionary Select Sector Index, a benchmark that includes companies from the following industries: retail (specialty, multi-line, Internet and catalog); media; hotels, restaurants & leisure; household durables; textiles, apparel & luxury goods; automobiles, auto components and distributors; leisure equipment & products; and diversified consumer services. The fund's top holdings include McDonald's (NYSE: MCD), Walt Disney Company (NYSE: DIS), and Home Depot, Inc (NYSE: HD). The fund allocates about half of its assets to consumer services, with the remainder spread across media and consumer goods segments. XLY plummeted during the recession, but has turned in an impressive performance over the past 52 weeks, adding about 40% over that period.

Vanguard Consumer Discretionary ETF (VCR)
Vanguard also offers a play on the discretionary sector with VCR, an ETF that tracks the MSCI US Investable Market Consumer Discretionary Index . This index consists of stocks of large, medium, and small U.S. companies in the consumer discretionary sector. While XLY has just under 100 holdings, VCR invests in about 375 individual stocks. From a sector perspective, the fund [primarily] invests in consumer services (49%), media (24.54%), and consumer goods (17%). VCR is up about 12% so far on the year.

PowerShares Dynamic Retail (PMR)
PowerShares' PMR seeks to replicate the Dynamic Retail Intellidex Index, an "intelligent" benchmark comprised of stocks of U.S. retail companies. This focus could put PMR in a unique position if discretionary spending surges. Discount retailers could see a slide in [sales], while more traditional outlets could see their profitability jump. PMR dedicates roughly 94% of its assets to the consumer services sector, and major holdings include Limited Brands (NYSE: LTD), Gap (NYSE: GPS), and Nordstrom (NYSE: JWN).

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