The acceleration in variety growth

We find that spending shares have shifted dramatically, with these shifts poorly anticipated by relative Engel-curve or price effects. Spending has shifted rapidly away from goods that arguably show little variety change, with the shift accelerating in the last 20 years. Taken at face value, the shifts imply variety growth averaging about 1 percent per year over 1959-1999, and accelerating about 1 percent between the first and second halves of the sample (1979-1999 relative to 1959-1979). We also find that the rate at which the BLS must substitute noncomparable items in its pricing basket predicts increased spending on a category. This provides some auxiliary support for the idea that new products have played an important role in the substantial shifts in spending. Finally we argue that variety shifts are important to consider in the exercises of Hamilton (1998) and Costa (2000), each of whom captures a rate of unmeasured growth by observing the rate at which spending shifts away from necessities toward luxuries. We also find that, for the 1980-1996 period, their calculations are not robust to considering a broad set of spending categories.