We have heard many economists say that the U.S. economy is heavily dependent on consumer spending. Consumption expenditure accounts for approximately 70 percent of the nation’s GDP. Since the so-called Great Recession began in late 2007, there has been a tremendous shift in consumer habits in the United States.
The chart below shows the changes in consumption expenditure since the U.S. Bureau of Economic Analysis started measuring it in the late 1940s. You will notice that the shift in the total per capita consumption spending is mostly the result of a shift in expenditure in the Goods sector, while the impact on the Services sector is less severe.
How has this shift affected retail sales across the various sectors? The U.S. Census Bureau tracks retail sales volumes across different sectors every month, and the data shows that some sectors are impacted more than others.
Health and Personal Care Stores (e.g. CVS or Walgreens) have not seen much of an impact due to the recession. Neither has there been a significant impact on Food & Beverages Stores. On the other hand, Motor Vehicle and Part Dealers, as well as Building Material and Garden Equipment and Supplies Dealers are the two sectors that have suffered the most during the recession, while sectors like Clothing and Clothing Accessories Stores, Electronics and Appliances Store and Sporting Goods, and Hobby and Music Stores have seen just a moderate impact. The figure below shows the winners and losers among various retail sectors since January 2006.
Analyzing the stock market performance of industries in the stock market also gives us a general idea about which sectors are doing better or worse in this economy. Whittaker Associates conducted an analysis of 35 different sectors by using the Dow Jones Industrial Indexes to study how these sectors have performed over the last three years as compared to the S&P 500 Index.
The slides below (shared through Slideshare), graphically compare the results of our analysis. The industries are listed in the order of the sectors with the best overall returns in the last three years (as of August 26, 2010).
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As the slides illustrate, sectors like Tobacco, Food & Beverage, Chemicals, Industrial Transportation, and Personal Goods are among the best performing sectors. Sectors like Consumer Electronics, Banking, Financial Services, General Industrials, and Insurance are among the worst performing sectors.
What these two analyses tell us is that sectors like food and beverage and personal products have been impacted least by the recession. Though there has been a dramatic shift in consumer expenditure patterns, these two sectors have continued on an upward trend. Non-essential spending on sectors such as household furniture, electronics, and motor vehicles has decreased significantly.
Note: It is worth remembering that stock market indices like the one used in this analysis are largely impacted by the public’s expectation about the future returns of the stocks in the industry’s index. Some sectors like Consumer Electronics, which have had only a moderate impact in retail sales due to the recession, is the worst performing index among the 35 industries chosen for this analysis. This can either mean that the sector is severely undervalued or there is a great expectation in the market that the retail sales in this sector will decline rapidly over the coming months.