The consumer services sector is made up of stocks that produce goods that are intangible. These include diversified consumer services, media, restaurants, leisure, and hotels. The consumption of products and services under the consumer services sector is subject to the state of the economy.
If the economy is bad, consumers easily let go of consumer services and rather save their money. The performance of the stocks of companies under the consumer services sector in the stock market indicates the future of the economy and the performance of the stock market.
The state of the economy and consumer confidence to purchase services from the consumer services sector, are directly related. If the economy is declining, consumers will lose confidence and refrain from the non-essential services. The implication of this is that the reduction in the consumers’ demand will result in lower sales for the producing companies, and the economy will continue to decline and may eventually lead to a recession.
The decline in the stocks of the consumer services companies usually heralds the general stock market decline and the start of a recession. And when the economy starts to strengthen and consumer confidence increases, there will be an increase in the demand for non-essential services; and ultimately the stocks of the consumer services companies will rise.
Therefore, the economy can be evaluated by the performance of the stocks of consumer services companies in the stock market. Also, investors can use the indices of the sector to make informed investment decisions.