2 Consumer Staples

The term describes products and services that are desirable for consumers, but not essential to their daily living. In other words, rather than having to buy these products because they are necessities, they have the freedom to decide—the discretion—to purchase them, or not. Consumer discretionary purchasing usually increases when consumers have more money to spend.

Walt Disney is one of the best picks from the entertainment industry. As of August 2021, Walt Disney has a market capitalization of $324.01 billion. Market CapitalizationMarket capitalization is the market value of a company’s outstanding shares. It is computed as the product of the total number of outstanding shares and the price of each share. Hotels, restaurants, and leisure – These are the services that belong to the leisure service industry, ranging from cinemas, fast food diners to expensive hotels. Consumer Services Across Segments –This sector encompasses services in general.

  • Cosmetics and perfume are generally part of the consumer staples sector.
  • Price elasticity is an economic concept that describes the change in consumer quantity demand as prices change.
  • Tariffs and trade tensions generally raise the cost of goods for consumers.
  • This insight is tied to answers households provide when surveyed about their expected financial circumstances.

The consumer discretionary sector of the economy encompasses various industries, the companies of which produce consumer discretionary products. Individuals can focus their investing on this sector by buying consumer discretionary stocks, mutual funds, and ETFs. Further, consumer staples are important for portfolio diversification.

Avenue Supermarts (NSE:DMART) Has A Pretty Healthy Balance Sheet

These companies sell products people must — or think they must — buy. Consumer discretionary companies usually see sales and profits grow when the economy is growing. The discretionary products will not sell as well if consumers are worried about https://1investing.in/ the economy. An investor may want to cycle her investments between ETFs of the two sectors as the economy moves through its own cycles. Consumer staples companies are those that either produce or sell products that people buy on a regular basis.

She’s also an aspiring polyglot, always in a book and forever on the hunt for the perfect classic red lipstick. Explore online trading platforms to find a brokerage firm that’s right for your financial goals. Use the table below to compare your options and find the best fit. Use the graph below to track how the Consumer Staples Select Sector SPDR ETF has been performing over the past three months, year and five years. Tracking the performance of this ETF is one way to gauge how the sector as a whole is doing.

Finder.com is an independent comparison platform and information service that aims to provide you with information to help you make better decisions. We may receive payment from our affiliates for featured placement of their products or services. We may also receive payment if you click on certain links posted on our site. Finder is not an advisor or brokerage service, and we don’t recommend investors to trade specific stocks or other investments. Consumer staples are considered defensive because they remain relatively stable in all economic climates.

Characterized by steady if unspectacular growth, the consumer staple sector is a haven in for investors in recessionary times. Consumer staples stocks can be a good option for investors seeking consistent growth, solid dividends, and low volatility. The consumer discretionary sector’s manufacturing segment includes automotive, household durable goods, textiles & apparel and leisure equipment. The services segment includes hotels, restaurants and leisure facilities, media production and related services, and consumer retailing and services.

An added perk is its higher dividend yield than the S&P 500 Index — even during a recession. When an economy is growing, many sectors see stock values increase and this can make equities attractive. The higher values are due to increasing profits and more discretionary consumer income. Typically, gross domestic product is the number one metric for analyzing an economy. When GDP is growing, it indicates a strengthening economy where people and businesses are willing to spend more. Conversely, when GDP is decreasing, it is an indication of economic contraction and the need for spending prudence.

consumer staples meaning

Staple goods are different from Impulse goods or Emergency Goods. Staple goods are those goods which are needed on a day to day basis. It is not needed on day to day basis but you bought it on impulse. Emergency goods, consumer staples meaning on the other hand, are those goods which are needed in an emergency. Medical supplies like Gauze tape are perfect examples of Emergency goods. Thus, Staple goods are different from Impulse goods and Emergency Goods.

Consumer Staples

These are nutritious and also a necessity for a healthy lifestyle. The other important reason because of which these staple food products are consumed in such large quantities is that they are not costly. Instead, they are so affordable that even poor families are able to buy these products and satisfy their hunger on a daily basis. The third important reason is that these goods can be easily cooked and eaten on an everyday basis. Mostly these staple goods contain those food items that people consume on a regular basis.

When an economy is contracting, investors may find consumer staples stocks a solid investment choice. These consumers, however, still need to buy consumer staples—such essential and basic household items as toilet paper, paper towels, food, beverages, and gas. Although there are no substitutes for consumer staples goods, consumers have a lot of options when shopping for the cheapest products. That makes the competition among suppliers very challenging in an environment where commodity prices are rising. Costco Wholesale Corp. is a good example of a consumer staple stock.

What Stocks Benefit From a Drop in Commodities

Also by taking these nutrients is the significance of a healthier lifestyle. Thus this is one of the main reasons why staple goods are consumed on a regular basis. While some brands are little overpriced some are completely moderate and people don’t really have to burn a hole in their pocket to consume it on a daily basis. Also, the affordability of staple goods depends on the brand of the products. This is yet another important factor which makes staple goods so readily availed.

consumer staples meaning

The industry is trading close to its 3-year average PE ratio of 44.6x. We learn nothing about such staples as the seasonality of labour or the administration of the poor law. This means that these foods are very important to most Asians diets. A staple in an American diet might be red meat and potatoes for example.

Consumer Confidence

Recession resistant refers to an entity such as stocks, companies, or jobs that are not greatly affected by a recession. Recession proof is a term used to describe an asset, company, industry, or other entity that is believed to be economically resistant to the effects of a recession. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

Meaning of staple goods

The main identifying factor of consumer staples is the consistency of demand for the products among consumers. Consumer staples are considered to be non-cyclical, meaning that they are always in demand, year-round, no matter how well the economy is—or is not—performing. Also, people tend to demand consumer staples at a relatively constant level, regardless of their price. Many consumer staples are FMCG products, and people buy products from the consumer staple category incessantly. This is the reason why they represent a much larger part of the economy than non-essential goods. Examples of consumer staples include basic food, household and cleaning products, medical supplies, etc.

This means that they’ll most likely save less and instead make major purchases in the following 12 months. Levels below 100 point to a pessimistic outlook for the economy. The consumer confidence indicator can shed light on future consumption and saving behaviors of households. This insight is tied to answers households provide when surveyed about their expected financial circumstances. It’s also based on how they feel about economic conditions and unemployment. During the previous century, trade had increased dramatically as new products – sugar, tobacco and cotton – not produced in the importing region became international staples.

Also, the fact that it is easily available depended on the fact that its demand is higher. Thus more and more people tend to manufacture staple goods so that they can increase their sales and grow revenue. It is clearly understood that those staple goods which are considered by an average human every day is easily available in the markets. One can buy this form a local grocery store or any local market or even a supermarket.

Higher disposable income usually leads to more spending on discretionary items. The consumer discretionary sector consists of a variety of industries that can be sensitive to changing economic conditions and bellwethers of consumer spending. The companies included in these industries react and adjust to changes in consumer discretionary income and purchases of non-essential products and services.