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ETFs to Gain as US Industrial Output Rises in July

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The latest update on U.S. industrial output looks decent despite the increasing new COVID-19 cases from the highly contagious delta variant. Per the Fed’s recently-released data, total industrial production rose 0.9% in July against an increase of 0.2% in June. There was a 1.4% rise in manufacturing output despite the constrained supply of semiconductors, followed by a 1.2% rise in mining production. However, there was a 2.1% fall in utilities production.

Total industrial production rose 6.6% year over year in July. The metric increased at an annual rate of 5.5% in the second quarter of 2021. Going on, manufacturing output was up 0.7%, excluding the gain of 11.2% for motor vehicles and parts.

According to the Fed’s report, the durable manufacturing index was up 2.4% while the nondurable index increased 0.3%. Moreover, the index for other manufacturing (publishing and logging) inched up 0.2%.

Going on, capacity utilization for the industrial sector increased 0.7% in July to 76.1%. The manufacturing capacity utilization for the industry, which is the measure for studying how efficiently firms are utilizing their resources, rose 1.1% in July to 76.6%, per the Fed’s report.

Present U.S. Economic Scenario

Investors have remained optimistic on multiple reasons as the U.S. economy is recovering from the pandemic-led slump amid the rising delta variant cases. The impressive second-quarter earnings season, data reflecting moderating inflationary pressure along with solid jobs report for July are some factors keeping the investing environment upbeat.

According to the Labor Department report, the consumer-price index increased 5.4% year over year in July and 0.5% sequentially (per a CNBC article). Also, there was a 0.3% sequential rise in core inflation (excludes energy and food prices) in July along with a 4.3% year-over-year increase.

The passage of the bipartisan infrastructure bill of $550 billion in addition to the previously-approved funds of $450 billion for five years by the Senate has also brought in a new wave of optimism, particularly for cyclical sectors like industrials and materials. Total spending may go up to $1.2 trillion if the plan is extended to eight years. The spending on the infrastructure will help instill more strength in the economy.

Market analysts also seem upbeat about the second-quarter earnings season, which has already seen better-than-expected results, stimulating the rally in stock markets.

Moreover, the latest jobs report, which highlights improving employment conditions in the United States, is boosting optimism levels. According to the Labor Department, the U.S. economy added 943,000 jobs (the best since August 2020) last month amid surging delta variant woes, as stated in a CNBC article. The metric surpassed the Dow Jones estimates of adding 845,000 jobs in July.

The unemployment rate also declined to 5.4%, comparing favorably with the estimate of 5.7%, per a CNBC report. Commenting on jobs data, Robert Frick, corporate economist at Navy Federal Credit Union, has said that “This not only was a strong jobs report by nearly every measure, it also signals more good things to come,” according to a CNBC article.

Meanwhile, U.S. retail sales declined 1.1% sequentially in July 2021, following a revised 0.7% gain in June and compared with the market consensus of a 0.3% decline, due to a fall in auto purchases and a resurgence in COVID-19 cases that hurt consumer demand.

Also, the increasing concerns about the surging coronavirus cases due to the delta variant continue to dampen U.S. consumer sentiments. The metric surprisingly slid to a pandemic-era low level in early August when compared to a reading of 70.8 recorded in April 2020. The University of Michigan’s preliminary consumer sentiment index fell to 70.2 in August from 81.2 last month.

Industrial ETFs That May Gain

The industrial sector, which faced disruption in global supply chains and factory closedowns, is expected to rebound on recovery from the coronavirus-led slump. Against this backdrop, investors can still keep a tab 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 Sector ETFs to Gain from Infrastructure Bill).

AUM: $19.33 billion

Expense Ratio: 0.12%

Vanguard Industrials ETF (VIS - Free Report)

The fund tracks the MSCI US Investable Market Industrials 25/50 Index (read: What Does US Economic Recovery Mean for Industrial ETFs' 2H21?).

AUM: $5.48 billion

Expense Ratio: 0.10%

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

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

AUM: $1.76 billion

Expense Ratio: 0.42%

Fidelity MSCI Industrials Index ETF (FIDU - Free Report)

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $865.4 million

Expense Ratio: 0.08%