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Industrial ETFs at Risk as US Industrial Output Weakens in Winter

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The latest update on U.S. manufacturing output looks disappointing, largely due to the severe winter conditions in the south-central region of the United States in mid-February. Per the Fed’s recently-released data, total industrial production declined 2.2% in February. Going on, there was a 3.1% and 5.4% slump, respectively, in manufacturing output and mining production. Meanwhile, there was a 7.4% rise in utilities’ output, largely on increased heating requirements due to the severe winter chills.

Total industrial production declined 4.2% year over year in February. According to the Fed’s report, some petroleum refineries, petrochemical facilities and plastic resin plants were damaged due to the deep freeze and had to be temporarily shut for the remaining month. Going on, capacity utilization for the industrial sector slid 1.7% in February to 73.8%. In February, the manufacturing capacity utilization for the industry, which is the measure for studying how efficiently firms are utilizing their resources, also declined 2.3% to 72.3%, per the Fed’s report.

Present U.S. Economic Scenario

Accelerated coronavirus vaccine rollout, introduction of another round of fiscal stimulus and the reopening of U.S. economy may lead to faster U.S. economic recovery from the pandemic-led economic slowdown.

Notably, President Joe Biden stated that the country is expected to have sufficient COVID-19 vaccines for adults who want to get vaccinated by the end of May, per a YahooFinance article. Encouragingly, Biden is aiming for a situation where Americans can meet friends and families in small groups for celebrating the Fourth of July, according to a CNBC article.

Moving on, Biden finally signed the $1.9-trillion coronavirus relief package, also known as the American Rescue Plan Act of 2021, into law.

The unemployment levels are also improving, signaling an economy on the mend. The U.S. economy added 379,000 jobs in February 2021 after a revised rise of 166,000 in January, beating market expectations of an increase of 182,000, per the verified sources.

Also, the latest Institute for Supply Management (ISM) Manufacturing PMI data for the United States is painting an impressive picture for the sector. The metric rose to 60.8 in February 2020 from 58.7 in January and surpassed forecasts of 58.8, per a Reuters article. Notably, the manufacturing sector, which makes up 11.9% of the U.S. economy, rose to a three-year high level in February (per the same article). According to the ISM, February’s rise in manufacturing activity marks the ninth straight month of gains for the space.

Most importantly, the Fed has lifted its forecast for GDP growth to 6.5% in 2021 from 4.2% stated in December 2020, according to a CNBC article. It has also raised the economic growth forecast from 3.2% to 3.3% for 2022. Moving on, growth is likely to cool down in 2023 to 2.2%. The Fed has predicted the longer-run growth measure at 2.3%.

Industrial ETFs that May Suffer

Against this backdrop, investors can still keep tabs on the following ETFs (see all industrial ETFs here):

The Industrial Select Sector SPDR Fund (XLI - Free Report)

The fund tracks the Industrial Select Sector Index (read: 4 Sectors & Their ETFs Offering Great Value Now).

AUM: $19.43 billion

Expense Ratio: 0.12%

Vanguard Industrials ETF (VIS - Free Report)

The fund tracks the MSCI US Investable Market Industrials 25/50 Index (read: Cash in on the Reopening US Economy Optimism With These ETFs).

AUM: $4.74 billion

Expense Ratio: 0.10%

iShares U.S. Industrials ETF (IYJ - Free Report)

The fund tracks the Dow Jones U.S. Industrials Index.

AUM: $1.50 billion

Expense Ratio: 0.42%

Fidelity MSCI Industrials Index ETF (FIDU - Free Report)

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $709.1 million

Expense Ratio: 0.08%

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