The consumer staples sector has been drawing investors’ attention of late backed by an improving economy and rising consumer confidence. Improved labor market optimism and gradual wage acceleration are driving consumer confidence, a key determinant of the economy’s health.

Consumer Confidence Surges

Consumer confidence improved moderately during the month of June indicating that the economy is on the recovery path after a dismal show in May. Steady job additions and persistently low unemployment have helped the household wealth to increase. This, in turn, boosted consumer spending.

According to the recent Conference Board data, the Consumer Confidence Index rose to 118.9 in June from May’s reading of 117.6. We expect this positive sentiment to translate into higher consumer spending that may help revive sales.

In mid-June, the Federal Reserve increased its benchmark interest rate a quarter point for the third time since December, reiterating the fact that the economy is in good shape. The widely anticipated move, in view of strengthening labor market and stabilizing inflation, takes the Fed rate from 0.75–1% to 1–1.25%. Further, the Fed indicated that it anticipates the next hike in December, along with three more in the coming year, which signals rising consumer confidence as well as the U.S. economy’s growth.

Sector’s Correlation with the Economy

Although the Consumer Staple sector, which is at the bottom 44% of the Zacks Sector Rank (9 out of 16), has not been an outstanding performer, it still holds some promise, given the favorable economic indicators. We note that so far in the year, the sector has registered an increase of 8.32%, almost in-line with the S&P 500 that is up 8.34%.

The rebound in oil prices from all-time lows, improving employment scenario and a gradual improvement in the housing market signal that the economy is on a recovery mode.

3 Stocks to Benefit as Consumers Regain Confidence