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Manufacturing Activity Hits 14-Year High: 3 ETFs in Focus

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Reflecting solid U.S. economic growth, the Institute for Supply Management’s Manufacturing PMI in the United States increased to 61.3 in August from July’s 58.1. The reading also surpassed market expectations of 57.7. Investors should note that any reading of 50 or higher points to growth.

With this, the U.S. manufacturing activity hit its highest level since May 2004 thanks to “faster increases in new orders, production, employment and inventories and lower inflationary pressures,” per tradingeconomics.

Of the 18 manufacturing industries, 16 registered growth in August. The reading of just two industries — Wood Products and Primary Metals — showed a sequential contraction in the month.

Anything to Worry About?

However, the ongoing issues with tariff imposition on some countries by the United States on steel and aluminum imports raise concern. Rising prices as a result of tariffs are a considerable negative. Surveyed companies seemed concerned about President Donald Trump's aggressive trade policies. There has been uncertainty regarding plans to relocate production to other countries to dodge retaliatory tariffs (read: 5 Sector ETFs Most Exposed to Trade Tensions).

However, surveyed companies in the machinery segment mentioned that rises in raw material costs have been subsiding. As a result, cost of manufactured components is also coming down. This should boost manufacturing activities (read: Will Consumer ETFs Lose Momentum on Trump Tariffs?).  

Beneficiaries of August Report

Whatever the case, taking cues from the August manufacturing report, below we highlight a few ETFs that may win in the coming days.

First Trust RBA America Industrial Renaissance ETF (AIRR - Free Report)

With the rampant tariff tensions, the America-focused industrial segment should perform well. The fund follows an index, which measures the performance of small and mid-cap U.S. companies in the industrial and community banking sectors. The fund has a Zacks Rank #2 (Buy).

Invesco S&P SmallCap Industrials Portfolio (PSCI - Free Report)

The underlying index consists of common stocks of U.S. industrial companies. These companies belong to industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense and general manufacturing. The fund has a Zacks Rank #2 (read: Time to Buy Industrial ETFs on Value?). 

Invesco Dynamic Building & Construction ETF (PKB - Free Report)

With the economy on solid grounds and demand for product remaining strong, machinery should do well. In any case, U.S. construction spending increased slightly in July as gains in homebuilding and investment in public projects were annulled by a sharp decline in private nonresidential outlays, per Reuters. The fund has a Zacks Rank #3 (Hold) (read: 5 Sector ETFs to Benefit from Q2 Revenue Growth).

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