Consumer staples sector looks to better times

In recent times the consumer staples sector has struggled to keep up with other parts of the market, weighed down by slow job growth and pressures on consumer spending.

However, with the American economy picking up steam we will probably see an improvement across the board.

It does seem that Americans are shifting away from higher-end, luxury goods, towards more mundane products. The slowdown in sales growth in the technology sector is the flipside of this, as an area that previously enjoyed strong growth begins to experience more difficult times.

Incomes and spending in the US both improved in May, although this has not led to a significant boost since savings are still being rebuilt.

However, from earnings so far there are reasons for hope. Procter & Gamble (P&G) had seen its position slip recently, failing to realise that consumers were increasing spending on more basic products and instead pursuing the premium end of the business. This led to the company losing ground to its rivals in areas such as shampoo products. However, the new CEO has pledged his determination to turn this situation around, although it will take an extended period for the company to regain its pre-eminence against rivals.

Proctor & Gamble chart


Meanwhile, Starbucks is a company that is likely to go from strength to strength. The business in North America powers ahead, while despite tax-related problems in Europe the company is seeing improved growth. Earnings momentum will be helped by its range of other products aside from coffee, including home coffee machines and bakery items. Although priced at around 30 times earnings for 2013, the company’s share price doesn’t seem minded to stop soon.

Starbucks Corp chart


Of course, much depends on how the Fed plays the autumn period, but with it now looking as if the US central bank will start to be more concerned about low inflation, the likelihood of an early taper (ie September) has been reduced.

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