Are Grocery Sales Sending Signals to the Markets?
With so many news items colliding over the past year, astute investors are leery about the markets. While several metrics, such as unemployment, appear positive, others such as labor participation give observers pause. One possible index we should consider, though, is grocery sales.
Why groceries? In many ways, they represent the literal pulse of the underlying economy. No matter what, people need to eat. But during strained financial circumstances, many families are forced into belt-tightening tactics. If growth in grocery sales declines against longer-term averages, we immediately know something isn’t right.
Measuring fluctuations in grocery sales can provide us a better read on the economy. It may also tell us on when to dive into the markets, or when to avoid them.
Grocery Sales are Rising, but Overall Growth is Declining
According to the Federal Reserve’s economic research department, the food-retail industry is big business. Last month, the government reported nearly $55.5 billion in total grocery sales. In the year-ago period, revenue hit just under $53.2 billion, or 4.3% growth.
We should expect these rising numbers. After all, the U.S. has a fairly robust population growth rate. Moreover, we “import” people through (loose) immigration. These immigrants, which typically hail from third-world countries, tend to birth more children than the majority American population.
The end result, of course, is that more food needs to feed more people.
But is that really what’s going on? In terms of annual growth in grocery sales, we’re actually declining. Consider that in the 2000s decade, we saw five years of grocery sales growth that exceeded 3%. In the current decade, we’ve only experienced two years.
That said, the most worrying indicator is that two times last decade, growth slipped below 1%. In 2002, the grocery sales rate slipped to 0.41%, and seven years later, it fell to 0.01%. We all recognize these years as ones immediately following cataclysmic events.
Are we then due for another such shock to the economy? Since grocery sales growth dropped to near-dead even in 2009, we’ve had eight years of respectable performances. And 2018 is setting up to be a record year.
My takeaway is that the economy has substantively improved for certain demographics; namely, the well educated. As far as predicting a market crash, we know that a healthy correction is both inevitable and desired.
The “when” is a difficult question to answer. But with an extended period without a sharp hit to the markets, I think being prepared is a reasonable sentiment.