Industry Level Data
Industry Data is supportive of growth as the National Retail Federation expects retail sales to grow 4.1% in 2015, on top of last year's growth of 3.5% last year. Although my charts below for Retail Trade and Food Services does include automobiles and restaurants, I see automobiles and restaurants moving together with retail trade as spending and consumer confidence improves. The University of Michigan's Index of Consumer Sentiment reports an index level of 95.0 for March 2015, which are pre-recession levels. I'll talk more about the index under macroeconomic data later. Going back to the charts, I broke out the consumer staples associated retail data which highlights the consumer staples' less volatile retail sales. The exception is the warehouse clubs and superstores group which grew rapidly before the Great Recession. I graphed volatile gasoline station sales separately from retail sales. Despite the current crude oil price slump, consumers are not spending their gas savings on other retailers.
The Consumer Staples Select Sector SPDR ETF (XLP) as well as the S&P 500 contain many very large companies with global operations. The macroeconomic environment will have a larger impact on these companies. It's easy to get distracted by the U.S. dollar's rise, oil prices, and slowing world economies. The January 2015 International Monetary Fund's (IMF) GDP estimates include these global effects. The below shows that World Real GDP and U.S. Real GDP is increasing but U.S. growth slows in 2016.
My model estimates that the U.S. consumer staples industry is slightly undervalued based on current industry and macroeconomic data therefore the consumer staples industry as represented by XLP has room to grow. Because the S&P 500 is XLP's best friend, the stock market's volatility affects the consumer staples ETF's price. Luckily for both friends, the U.S. economy hasn't peaked. Consumer Sentiment has only been above 90 for four months but generally has to stay at a high level for an extended period of time before a recession comes along; also the savings rate hasn't fallen below 4%. Finally positive GDP growth from the IMF despite and positive U.S. economic data provides support.
Lastly, the consumer staples industry produces essential goods that will still be in high demand regardless of the economy making consumer staples stocks less volatile during economic downturns. If you're not convinced about my bullish view on the economy you should still consider having consumer staples stocks for your equity portfolio.