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– November 9, 2016

Consumers are buying and shopping differently than they used to, but their spending remains the driver of the U.S. economy.
Change is apparent in nearly all aspects of the economy. Economic agents are constantly adapting, innovating, and attempting to improve. As we focus on U.S. consumers as the engine of growth for the current economic expansion, it’s interesting to note changes in their spending patterns.

In 1993, automobile and auto parts retailers and grocery stores held the two largest shares of retail sales (based on the trailing 12 months of data through September 1993). They accounted for 21.6 percent and 17.7 percent of total retail sales, respectively (Chart 2). Along with general merchandise stores (a 12.3 percent share), these top three retail categories accounted for over 50 percent of retail sales.

Twenty-three years later, retail shopping habits have changed, in some cases significantly. While auto and auto parts retailers still account for the largest share of retail spending, their share has dipped about 1 percentage point to 20.5 percent. Grocery stores have seen their share fall to 12.9 percent, almost 5 percentage points below 1993. In fact, nine of the 13 retail categories have seen their market share drop between 1993 and 2016. The general merchandise category has managed to hold about steady.

The big gainers over the past two decades have been nonstore retailers (up to 9.9 percent from a 3.9 percent share), restaurants and bars (up to 12 percent from 10.1 percent), and drugstores (up to 6.1 percent from 4.3 percent). Nonstore retailers includes the fast-growing online segment, while 20 years ago, when online shopping was in its infancy, the category was predominantly catalog and direct sales. Those top three market-share gainers now account for about 28 percent of retail sales, a full 10 percentage-point gain over 1993. Their gains may reflect changes in merchandising or customer demographics, but whatever the reason, their growing market share shows that consumers have altered their spending patterns.

Economic Outlook
Our Business-Cycle Conditions Leaders Index improved again in the latest month, rising to 58 in October from 54 in September (Chart 3). October marks the second month in a row above the neutral 50 level following seven consecutive months in the 38-to-50 range. As we cautioned last month, we do not believe there is enough evidence to suggest the economy is on a significantly different path. Consequently, we still believe the results over the past nine months are consistent with overall slow growth and continued economic expansion. However, this second month of improvement and readings above 50 provides marginal optimism that the risk of recession in the months ahead has diminished.

The improvement is a result of two indicators turning up, from a neutral to a positive reading, while one fell from positive to neutral. Housing permits and debit balances in margin accounts both showed positive trends in the latest readings, while the average workweek in manufacturing flattened after rising for two months.

For the remaining Leaders, initial claims stayed favorable, as did real retail sales. However, consumer expectations are weak. Real stock prices and the yield curve have been positive, while real new orders for core capital goods and heavy truck unit sales remained down.

Among our other indexes, the Coinciders were unchanged at 92 in October, while the Laggers fell sharply, to 67 in October from 92 in September. That drop was a result of three indicators turning neutral from positive (real manufacturing and trade inventories, commercial and industrial loans, and core CPI). The sharp decline reflects the period of weakness in the economy in the first half of 2016.


Click for interactive Indicators at a Glance (on mobile device turn to landscape)

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