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Is US Manufacturing Space Improving? 4 Sector ETFs Look Decent
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The ISM Manufacturing PMI in the United States dropped to 47.8 in February 2024 from 49.1 in the previous month, way below market expectations of 49.5 and marked the 16th successive period of declines in manufacturing activity. The data quelled previous hopes of fresh momentum in the sector.
New orders went back to the contraction territory (49.2 vs 52.5 in January), hurting production levels (48.4 vs 50.4) despite a softer decline in backlog of orders (46.3 vs 44.7). In the meantime, prices increased for a second straight month (52.5 vs 52.9), albeit at a slower clip, amid more expensive transportation equipment, chemicals, and computer and electronic products.
Any Ray of Hope?
Demand is starting to rebound, with production becoming more stable compared to January as companies gear up for expansion. Suppliers, however, are facing challenges due to disruptions in their raw material supply chains.
Manufacturing GDP contraction declined to 40% in February from 62% in January. Notably, only 1% of sector GDP had a PMI at or below 45%, indicating less manufacturing weakness compared to previous months. None of the top six industries by contribution to manufacturing GDP had a PMI at or below 45% in February, showing improvement over the previous month.
The eight manufacturing industries reporting growth in February. These include – Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Miscellaneous Manufacturing; and Transportation Equipment.
Against this backdrop, below we highlight a few ETF investing areas that look decent at the current backdrop.
The space is currently experiencing improvement in sales. Most delivery dates of the products are scheduled for the second quarter of 2024. The underlying Russell 1000 Basic Materials RIC 22.5/45 Capped Gross Index measures the performance of the basic materials sector of the U.S. equity market. The fund charges 40 bps in fees.
Transportation – iShares U.S. Transportation ETF (IYT - Free Report)
Survey for Transportation equipment revealed that the first-quarter of this year is slower due to some customer order changes. But businesses are expected to be strong for the rest of 2024. The space may see an increment in their growth projections. The fund has a Zacks Rank #2 (Buy).
Survey for the Machinery industry indicated that the demand has finally gained momentum, with customer orders more closely resembling typical January and February levels. January was up 22% sequentially while February has seen 26% uptick in orders. Business for the miscellaneous manufacturing is also stable. The fund has a Zacks Rank #2.
The apparel space has reported the highest growth in the month February. Since apparel retail makes up 22.78% of the fund XRT, investors may bet on the ETF XRT. The fund has a Zacks Rank #2.
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Is US Manufacturing Space Improving? 4 Sector ETFs Look Decent
The ISM Manufacturing PMI in the United States dropped to 47.8 in February 2024 from 49.1 in the previous month, way below market expectations of 49.5 and marked the 16th successive period of declines in manufacturing activity. The data quelled previous hopes of fresh momentum in the sector.
New orders went back to the contraction territory (49.2 vs 52.5 in January), hurting production levels (48.4 vs 50.4) despite a softer decline in backlog of orders (46.3 vs 44.7). In the meantime, prices increased for a second straight month (52.5 vs 52.9), albeit at a slower clip, amid more expensive transportation equipment, chemicals, and computer and electronic products.
Any Ray of Hope?
Demand is starting to rebound, with production becoming more stable compared to January as companies gear up for expansion. Suppliers, however, are facing challenges due to disruptions in their raw material supply chains.
Manufacturing GDP contraction declined to 40% in February from 62% in January. Notably, only 1% of sector GDP had a PMI at or below 45%, indicating less manufacturing weakness compared to previous months. None of the top six industries by contribution to manufacturing GDP had a PMI at or below 45% in February, showing improvement over the previous month.
The eight manufacturing industries reporting growth in February. These include – Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Miscellaneous Manufacturing; and Transportation Equipment.
Against this backdrop, below we highlight a few ETF investing areas that look decent at the current backdrop.
Sector ETFs in Focus
Chemicals – iShares U.S. Basic Materials ETF (IYM - Free Report)
The space is currently experiencing improvement in sales. Most delivery dates of the products are scheduled for the second quarter of 2024. The underlying Russell 1000 Basic Materials RIC 22.5/45 Capped Gross Index measures the performance of the basic materials sector of the U.S. equity market. The fund charges 40 bps in fees.
Transportation – iShares U.S. Transportation ETF (IYT - Free Report)
Survey for Transportation equipment revealed that the first-quarter of this year is slower due to some customer order changes. But businesses are expected to be strong for the rest of 2024. The space may see an increment in their growth projections. The fund has a Zacks Rank #2 (Buy).
Machinery – Industrial Select Sector SPDR ETF (XLI - Free Report)
Survey for the Machinery industry indicated that the demand has finally gained momentum, with customer orders more closely resembling typical January and February levels. January was up 22% sequentially while February has seen 26% uptick in orders. Business for the miscellaneous manufacturing is also stable. The fund has a Zacks Rank #2.
Apparel – SPDR S&P Retail ETF (XRT - Free Report)
The apparel space has reported the highest growth in the month February. Since apparel retail makes up 22.78% of the fund XRT, investors may bet on the ETF XRT. The fund has a Zacks Rank #2.