Discount Retailers Prevail in August

NEW YORK (TheStreet) -- August did not provide any real shocks to the retail sector.

Discount retailers posted better-than-expected earnings while higher-end stores continues to suffer, an indication that consumers are still wary of spending. Those results will continue to put a damper on the health of the U.S. economy.

Overall, retailers reported same-store sales fell an average of 2.9% at the 30 retailers tracked by Thomson Reuters. Although this decline was better than the 3.5% expected by analysts, half of the tracked stores missed analysts' expectations.

It appears that consumers are still holding onto their wallets by shopping for only the essentals at discount retailers like the Gap(GPS Quote) and TJX(TJX Quote).

In fact, retail giant, Costco(COST Quote), which closed at $50.75 and is up 32% from its March low of $38.44, reported a 2% decline in same-store sales, noting food and sundries were its best sellers.

Additionally, higher-end stores such as the Children's Place Retail Store(PLCE Quote), which was expected to see a boost in sales driven from back-to-school shopping, reported a worse-than-expected 8% same-store sales decline that was much higher than analysts' expectations of a 3.3% drop.

The latest retail report supports the notion that consumers are only spending on essentials and trying to preserve their disposable income. This trend, if it continues, will make it difficult for the economy to recover.

From an investor's perspective, the SPDR Consumer Staples Select ETF(XLP Quote), which closes at $24.61 on Wednesday and has gained nearly 26% from its March low of $19.41, is a good place to look.