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Will ETFs Gain From Improving US Industrial Output in April?

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April’s encouraging U.S. industrial output data has brought some hope despite the current turbulent market conditions. Per the Fed’s recently-released data, total industrial production rose 1.1% in the month. It stood out as the fourth straight month of gains of 0.8% or higher. Moreover, a 0.8% increase in the manufacturing output also looks positive. There was a 2.4% rise in utility production. Moreover, mining production witnessed a 1.6% uptick, mainly due to strength in the oil and gas sector.

Considering the latest data release, investors can track ETFs like The Industrial Select Sector SPDR Fund (XLI - Free Report) , Vanguard Industrials ETF (VIS - Free Report) , Fidelity MSCI Industrials Index ETF (FIDU - Free Report) and iShares U.S. Industrials ETF (IYJ - Free Report) , which might gain from an improving industrial output.

Total industrial production increased 6.4% from the year-ago figure in April. According to the Fed’s report, the durable and the nondurable manufacturing indexes inched up 1.1% and 0.3%, respectively, in April. The other manufacturing (publishing and logging) index was also up 0.9% in the month.

Capacity utilization for the industrial sector expanded to 79% in April. The manufacturing capacity utilization for the industry, the measure for studying how efficiently firms are utilizing their resources, increased 0.6% in April to 79.2%, up 1.1 percentage points from its long-run average, per the Fed’s report (the highest level since April 2007).

Present U.S. Economic Scenario

The world’s largest economy continues to struggle with the persistently high-inflation levels. Per the latest Labor Department report, the Consumer Price Index (CPI) jumped 8.3% year over year in April, surpassing the already high Dow Jones estimate of an 8.1% rise. The metric, however, compared favorably with the 8.5% rise (the maximum since December 1981) in March.

The core inflation index, which excludes volatile components, such as food and energy prices, rose 6.2% year over year, beating the expectations of a 6% rise. The rising inflation levels dashed the hopes of inflation peaking in March.

The continued steep inflation levels are also weighing on consumer confidence in the United States. The growing supply-chain disturbances, emanating from the ongoing Russia-Ukraine war crisis and the resurging COVID-19 cases in China, might trigger concerns over a further rising inflation level.

The Conference Board's measure of consumer confidence index stands at 107.3 in April 2022 compared with 107.6 in March. Moreover, April’s reading missed the consensus estimate of 108, per a Reuters survey of economists. Also, the metric continues to be below the pre-pandemic level of 132.6 achieved in February 2020.

However, certain U.S. economic data releases have been encouraging so far. The Department of Commerce reported that retail sales in April were up 0.9% month over month, marginally below the consensus estimate of 1%. Year over year, retail sales grew 8.2% in April.

Industrial ETFs in Focus

In the current scenario, we believe, it is prudent to discuss ETFs with relatively high exposure to the industrial companies:

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

The Industrial Select Sector SPDR Fund seeks to provide investment results that before expenses, match the performance of the Industrial Select Sector Index. The Industrial Select Sector SPDR Fund has an AUM of $13.67 billion and an expense ratio of 0.10% (read: Can Industrial ETFs Gain on Mixed Q1 Earnings?).

Vanguard Industrials ETF (VIS - Free Report)                   

Vanguard Industrials ETF offers exposure to the industrial sector and follows the MSCI US Investable Market Industrials 25/50 Index. Vanguard Industrials ETF manages an AUM of $3.44 billion and an expense ratio of 0.10%.

Fidelity MSCI Industrials Index ETF (FIDU - Free Report)

The Fidelity MSCI Industrials Index ETF seeks to provide investment returns that match, before fees and expenses, the performance of the MSCI USA IMI Industrials Index. Fidelity MSCI Industrials Index ETF has an AUM of $708.5 million and an expense ratio of 0.08%.

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

The iShares U.S. Industrials ETF seeks to track the investment results of the Russell 1000 Industrials 40 Act 15/22.5 Daily Capped Index. iShares U.S. Industrials ETF has an AUM of $1.29 billion and an expense ratio of 0.41%, as stated in the prospectus.