what are consumer staples 
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 these goods are those products that people are unable or unwilling to cut out of their budgets regardless of their financial situation 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 as such consumer staples are impervious to business cycles also people tend to demand consumer staples at a relatively constant level regardless of their price the basics of consumer staplescomprising nearly 70 of the nation s gross national product gnp 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 however spending on goods produced and sold by the consumer staples sector tends to be far less cyclical due to the lessened price elasticity of demand price elasticity is an economic concept that describes the change in consumer quantity demand as prices change the demand for consumer staples goods remains fairly constant regardless of the state of the economy or the cost of the product the makeup of the consumer staples sectorcompanies that sell pharmaceutical drugs like drugstores are included in the sector as are companies that produce and grow crops within the s p 500 index consumer staples are broken down into six industries 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 to compete on price consumer staples producers must be able to keep their costs down by adopting new technologies and processes or they must differentiate by introducing innovative products consumer staples financial performancethe consumer staples sector has outperformed all but one sector since 1962 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 1 compare this to the 11 86 return of the s p 500 over the same period 2 but the two generally move in line with one another more importantly the consumer staples sector has outperformed the s p 500 during the last three recessionary periods or periods of negative growth in the gross domestic product gdp due to their low volatility consumer staples stocks are considered to play a key role in defensive strategies investing in consumer staplesbuoyed 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 the consumer staples sector also often lures investors with its components rich dividend yields which tend to be larger than those generated in other sectors because of their slow and steady nature consumer staples stocks can also not only continue to pay dividends through recessionary periods but often continue to increase their payouts according to dividend com the annual dividend rate increased 8 over the 20 years ended in 2015 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 for example when stock prices fell dramatically in the wake of the 2020 economic crisis and lockdown the yield for state street s consumer staples sector index etf xlp rose from 2 74 to 3 00 due primarily to the lower priced shares producing the same dividend amount further consumer staples are important for portfolio diversification 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 they tend to bring in consistent earnings that support their dividend yields unlike the boom and bust cycles of riskier high growth stocks though more growth is available for consumer staples as they expand globally steady dividends earningslittle volatilitylow risksafe haven in recessionary timesslow growthlimited highsunderperformers when interest rates riseconsumer staples stocks can be a good option for investors seeking steady growth solid dividends and low volatility one can invest in consumer staples by purchasing the stocks of the individual consumer staples companies industry leaders include procter gamble p g b g foods bgs kimberly clark kmb and phillip morris pm or by purchasing mutual funds or exchange traded funds etfs that specialize in the sector real world example of consumer staplesmany of the major investment companies offer some consumer staples play vanguard for example offers vdc a consumer staples etf and a consumer staples index mutual fund invesco has pbj its dynamic food beverage etf along with a more general s p smallcap consumer staples etf further if you want to try investing internationally after all people need staples the world over the wisdomtree emerging markets consumer growth etf emcg and the ishares global consumer staples etf kxi are two options 