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Consumer Staples: Definition, Role in GDP, and Examples

The recent lessons of the depression – falling commodity prices, overproduction of certain agricultural staples – indicated otherwise. By the mid 1920s, display advertisements for consumer durables, leisure activities and homes outstripped those for traditional staples such as clothing or foodstuffs. The giant retailer reported strong sales of household staples like groceries. For example, in an Asian community rice and vegetables are considered staples. After conducting extensive market research studies many companies develop consumer advertising to target their ideal market segment.

Automobiles & Auto-Components Industry – Automobiles include cars, motorcycles, and other general types of vehicles. Components are the parts used in the creation and maintenance of vehicles. Tires, rubber, engines, and electrical circuits are good examples. Conversely, if the P/E is low, it may be because the company’s earnings are peaking in an upcycle that won’t last forever.

This squeezes profit margins and can negatively affect consumer spending and stock performance. Higher interest rates usually mean that borrowers end up paying more for their purchases. If interest rates go up, consumer spending may drop, affecting sector performance. Consumer staples stocks generally see slow and steady growth and can help diversify your portfolio.

Also, because these stocks tend to perform in a way counter to the consumer discretionary sector in market recessions, they can help bring balance to a portfolio. An example of this phenomenon is seen in the volatile returns of consumer discretionary stocks during most of 2020 and 2021. When the COVID-19 pandemic started and the market initially crashed, consumer cyclicals consumer staples meaning did poorly. You may remember stores being sold out of consumer staples such as toilet paper, but sales of discretionary goods suffered at the same time. The term consumer staples refers to a set of essential products used by consumers. This category includes things like foods and beverages, household goods, and hygiene products as well as alcohol and tobacco.

Consumer Discretionary ETFs

For people to survive they need to intake food that is rich in nutrients and provides energy. Now the staple goods that come under food products are mostly rich in three essential macronutrients that are needed by the body. These three macronutrients are proteins, fats and carbohydrates. As stocks rise in price, dividend yields will fall if the size of the dividend does not increase as well. Conversely, if stocks fall in price and if the dividend payout does not change, then the dividend yield increases.

consumer staples meaning

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Improve your vocabulary with English Vocabulary in Use from Cambridge. The advertisements almost always have children either enjoying a cereal or playing with a toy. I am a Digital Marketer and an Entrepreneur with 12 Years of experience in Business and Marketing. Business is my passion and i have established myself in multiple industries with a focus on sustainable growth.

Investing in Consumer Discretionaries

Costco makes most of its money from membership premiums, and in down markets, most people keep their Costco memberships to acquire discounted food, clothes, and other products. This was demonstrated in the 80% rise of Costco’s stock price from a level around $311 in early March 2020 to a closing price of about $558 in early December 2021. Unlike other stocks, the best time to buy consumer cyclicals is often when they have high valuation ratios.

The demand for consumer staples in a bad economy was so high that stores either had to limit quantities or had empty shelves. Consumer cyclical companies on the other hand, suffered from restrictions on purchases, whether budget- or policy-related, and their sales went down as a result. Alternatively, in a weakening or weak economy, consumers are more likely to forego the purchases of non-essential consumer discretionary products in favor of adding to their savings.

  • Tires, rubber, engines, and electrical circuits are good examples.
  • Consumerism is the idea that increasing consumption of goods and services purchased in the market is always a desirable goal.
  • One does not require putting in a lot of efforts in finding out these products.
  • Items such as sports equipment, video games, board games, and TV can be included here.

The consumer staples sector is one of the stock market’s 11 sectors and is sometimes called the consumer defensive sector. It includes companies that produce goods and services that people need daily, such as food, clothing, and household and personal care products. Consumer staples and consumer discretionary stocks tend to do well over different parts of the economic cycle. When the economy is in a recession or a period of slow growth, the consumer staples companies continue to generate sales and profits.

What Stocks Benefit From a Drop in Commodities

In this category, mostly the food items that are mainly derived from the items like the wheat, barley, rice or maize come. Example of the food of this category is bread, grains, pasta, flour, etc. Now, these staple goods are all consumed on a regular basis but may not be necessarily consumed in the same way at all places. Factors like regional differences, cultural differences, and daily lifestyle a bit affect the way in which these staple goods are consumed. The reason why staple goods are so much in demand is because of its availability, affordability and rich in nutrition and could be stored for a longer duration of time.

Both product classifications are influenced by cycles of the economy. Companies, industries, and products that are used for personal and household purposes. Consumer staples include food, alcohol, tobacco, medicine, clothing, and so forth. Companies that sell consumer staples have a reputation of resistance to economic downturn, but this is not always the case.

consumer staples meaning

Some predominant sectors that flourish with growing discretionary income are automobile, hospitality, retail and entertainment among others. When these sectors are well-performing, economy is said to be expanding. It pushes many businesses to focus more on luxurious products as compared to essentials due to higher consumer preference. Consumer cyclicals, or companies in the consumer discretionary sector of the economy, make items that are not considered necessities.

Consumers generally buy these products regardless of their financial situation or economic stability. These companies are essential to our daily life and do well even if the economy is waning. Consumer staples are an industry sector encompassing products most people need to live, regardless of the state of the economy or their financial situation.

According to the S&P Dow Jones Indices, for most of the 10 years ending April 26, 2021, the consumer staples sector returned 8.20% annually. Comprising nearly 70% of the nation’s gross national product , consumer spending holds a lot of sway over the economy. Economic growth and decline are typically led by consumer spending, which is cyclical. Cyclical means there are ebbs and flows, or times when the consumer spends more and periods when they have more conservative spending habits. Significant investments include the Consumer Discretionary Select Sector SPDR Fund and the Vanguard Consumer Discretionary ETF .

What unique risks does the consumer staples sector face?

Buoyed by the persistent demand of their products, consumer staples companies generate consistent revenues, even in recessionary periods. As a result, consumer staples stocks decline far less during bear markets than stocks in other sectors. With some products, such as food, alcohol, and tobacco, demand sometimes actually increases during economic downturns. Consumer staples stocks come from companies that produce goods that are essential for consumers—products such as toilet paper, food, soap, or clothing. The consumer staples sector includes companies that manufacture or sell products that are essential for living. Consumer discretionary stocks include companies that manufacture or sell products that aren’t essential for living and are dependent on the disposable income of households.

Once a staple of men’s business wardrobes, the suit is becoming more rare. Because of the storm, most stores were low on staples such as bread and milk. A staple is also a small, thick, U-shaped piece of metal with sharp ends that is hammered into a surface to hold something in place.

The stock shares of consumer discretionary companies tend to lead a general stock market decline at the beginning of a contraction. Interest rates can be an interesting metric to follow during all types of economic cycles. In general, interest rates rise in growth phases and fall during contractions.

This category is dedicated to all the dairy products which are consumed in large quantities worldwide. Some of the examples of this dairy product are milk, cheese, yogurt, butter, etc. One simply can’t survive the everyday work pressure if they stop taking this nutrient in their diet.

The economic cycle is the ebb and flow of the economy between times of expansion and contraction. Yes, it is as Tesla’s primary product is electric vehicles which is a non-essential product. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles.

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