The U.S. economy seems to be humming along, with 2017 growth touching 2.3%, well above the 1.5% in the year before. The Bureau of Economic Analysis upgraded its estimate for fourth quarter growth to 2.9% from the advance estimate of 2.6% in January.

The picture on the earnings front is just as rosy. Companies in the S&P 500 reported growth of 11.7% in earnings last year and analysts see that number growing by 18.4% in 2018, according to FactSet Research.

#-ad_banner-#While market volatility has jumped lately on fears of a trade war, solid economic growth, and hope that the tax cuts will drive earnings have supported stocks near highs.

But it seems investors may be looking at the wrong metrics.

Against good numbers at the broadest level, a recent release points to a new front of economic weakness lurking just under the surface.

This factor has an overwhelming effect on the economy and could soon turn investor sentiment. Looking deeper into the data may show the only place for safety in what could become the end of the bull market.

Are Retail Sales Hiding A Disturbing Trend?
Retail sales in the United States fell for the third consecutive month in February, even as consumer confidence hit a 17-year high. According to the Commerce Department, February retail sales fell 0.1% from the previous month, marking the first three-month slide since April 2012.

Weak retail sales could be a big problem for the economy considering 70% of GDP is driven by consumer spending. The Atlanta Fed downgraded its estimate of Q1 GDP growth to 2.3% on April 5, a half-percent reduction from its previous estimate. Contribution from consumer spending in the quarter is seen as 1.3% now versus 1.6% previously, the largest drop among contributing factors.

The picture is not uniformly bleak within retail sales and a trend is developing when you look deeper into the numbers.

Looking at the three-month data, it seems consumers are spending freely on small, impulse items while holding back on the bigger purchases. This could be showing some hesitancy on the part of consumers that other economic data isn’t showing.

In the big-ticket items, notably in Auto and Home Furnishings, there’s a significant change in the year-over-year growth and the more recent growth.

Sales for companies with more expensive products could be about to get worse as inflation shows signs of creeping higher. Higher prices might not be as obvious to consumers in those smaller items but could easily show through in larger-ticket purchases. The result could be fewer sales or lower profit for companies that aren’t able to pass inflation through to the customer.

Rebalancing Your Portfolio For The New Consumer
Among the biggest losers in the retail sales trend have been autos, furniture, and department stores. Rising rates and any broader economic weakness will weigh on car sales and home purchases. Department stores have been facing double jeopardy on the trend away from luxury shopping and an ever-larger slice of spending going online.

Avoiding the worst of this new trend in retail sales could mean rebalancing to companies in that lower-price component of consumer spending. If an economic slowdown were to hit, these smaller-ticket companies may also be relatively safer as consumers cut back further on big purchases.

McDonald’s (NYSE: MCD) may be the epitome of this lower-ticket, impulse spending trend, with its dollar menu and 14,000 U.S. locations. Improvements in technology and service helped the company drive a massive 11% increase in operating profitability last year. A refranchising program and benefits from tax reform should help to continue this success.

Shares pay a 2.6% yield and trade for 24.3 times trailing earnings. That valuation is higher than the 21.7 times average multiple over the last five years, but earnings are expected to jump 14% over the next four quarters to $7.59 per share.

The Michaels Companies (Nasdaq: MIK) owns six brands in the retail arts & crafts space, including the top specialty retailer in North America and the #1 wholesale distributor by market share. The arts & crafts segment should hold up well in any kind of consumer weakness as people look to save money by staying in and spending on inexpensive crafts.

The company is aggressively developing its online presence with three websites for different brands and free shipping on orders of $39 or more. The sites grew traffic from 130 million visitors in 2015 to 250 million in 2016 and continue to account for a larger portion of sales.

Shares trade for just 8.8 times sales, nearly half the average multiple of 16 times over the four years since the public offering. Earnings are expected to grow 5.5% to $2.32 per share this year.

Molson Coors Brewing (NYSE: TAP) is the leading brewer globally with 25% of the U.S. market, a 33% share in Canada and a fifth of the European market. The company acquired the remaining 50% stake in MillerCoors from SABMiller in 2016, giving it greater scale and international distribution.

Competition and shifting consumer tastes to craft beers has weakened volumes, but the company has expanded into the space and now has the largest brands in the United States, Canada, Ireland and Spain by market share.

Benefits from the acquisition of MillerCoors are just recently coming through to financials. While net sales only grew 1.7% in the year to Q2, the company was able to grow earnings before interest, taxes, depreciation and amortization (EBITDA) by 5.5% over the period. Free cash flow has tripled compared to the first half of 2016.

Shares pay a 2.2% yield and trade for 16.7 times earnings versus an average of 25.9 times over the last five years. Earnings are expected to increase 18% to $5.38 per share over the next four quarters.

Risks To Consider: While macro factors like retail sales point to support in shares of companies in smaller-ticket items, watch out for stretched valuations in many names after nearly a decade in rising share prices.

Action To Take: Follow consumers by investing in consumer discretionary companies that make their money on smaller-ticket products rather than larger purchases.

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