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Stock Strategist Industry Reports

Household Products Face Divergent Growth Opportunities

Despite optimism, we don't see category growth rates in the U.S. picking up.

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After reaching a five-year low in November of 2008, the University of Michigan's Consumer Sentiment Index has slowly climbed from the mid-fifties to the mid-seventies, suggesting improving consumer optimism about present and future economic conditions. As anyone who has studied psychology knows, however, thoughts aren't always reflected in behaviors, so although consumers may be increasingly optimistic, it's not a foregone conclusion that they will act on this optimism.

To a large degree we expect the behaviors that we've seen over the past two years to continue, with consumers in the lead role of cautious capital allocators, and persistently high unemployment playing the primary villain. In such a setting we doubt consumers will be opening their wallets too wide. The household products category, with both staple and discretionary products in the mix, should provide a useful backdrop from which to view this consumer spending story over the next year. In that context there are several themes for investors to watch:

Lauren DeSanto does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.