Markets

U.S. Industrial Output Continues to Rise in June: ETFs to Gain

The latest update on U.S. manufacturing output has pleased investors. Per the Federal Reserve’s recently-released data, industrial production, including output at factories, mines and utilities, rose 5.4% month over month, reflecting the highest monthly gain since 1959. Moreover, the figure beat analysts’ estimate of a 4.3% rise, per a Bloomberg survey. The metric in the United States declined 0.4% in January, 4.6% in March and 12.5% in April, while the same inched up 0.1% in February and rose 1.4% in May. Meanwhile, factory production surged 7.2% in June, the highest since 1946, per a Bloomberg article.

Data in Detail

Manufacturing level increased 7.2% in June, with major support from a rebound in the auto sector. Moreover, utilities output jumped 4.2% in June. Notably, on support from all major industries and excluding auto production, factory output increased 3.9% in June, per a Bloomberg article. However, there was a 2.9% decline in mining, including oil and gas production in June. The index for oil and gas well drilling also fell 18% last month.

Notably, Michael Pearce, senior U.S. economist at Capital Economics, said that, the improved in production levels was supported by “manufacturing output as producers, particularly in the auto sector, reopened factories to catch up with the surprisingly strong initial rebound in consumption,” per a Bloomberg article.

In June, capacity utilization for the manufacturing sector, the gauge for studying how efficiently firms are utilizing their resources, was 68.6% in June, up from the revised 65.1% in the previous month.

Looking Forward

The improvement in industrial production data has come at a time when the coronavirus outbreak continues to aggravate. In fact, a closely observed model is now predicting 224,000 deaths related to coronavirus in the United States by Nov 1, which is 16,000 more deaths than a prediction made last week, per a CNN report.

In order to fight the rising number of cases, states like California, Texas, Florida, Los Angeles, San Diego and Oregon along with others have halted or rolled back the reopening process, per a CNN report. California, for instance, is closing down all indoor restaurants, wineries, movie theaters, zoos, museums and bars.

It is being believed that the pausing or halting of the reopening process can derail the economic growth achieved so far after the coronavirus-induced lockdown measures.

Considering the halting of the reopening process in around a dozen states in the United States, Goldman Sachs has revised its growth estimates downward for the U.S. economy for the third quarter of 2020, per a Bloomberg article. Going by the article, the economy is expected to see 25% growth in the third quarter in comparison to 33% predicted previously. Consequently, the U.S. economy is expected to fall 4.6% in 2020 as against 4.2% forecasted previously, per the article.

Industrial ETFs That Might Gain

Against this backdrop, investors can keep a tab of the following ETFs (see all industrial ETFs here):

The Industrial Select Sector SPDR Fund XLI

The fund tracks the Industrial Select Sector Index (read: Forget Stay-At-Home Stocks & ETFs, Bet on Easing Lockdown).

AUM: $9.67 billion

Expense Ratio: 0.13%

Vanguard Industrials ETF VIS

The fund tracks the MSCI US Investable Market Industrials 25/50 index.

AUM: $2.86 billion

Expense Ratio: 0.10%

iShares U.S. Industrials ETF IYJ

The fund tracks the Dow Jones U.S. Industrials Index (read: Fed's New Stimulus Regains Confidence: 4 ETF Picks).

AUM: $802.2 million

Expense Ratio: 0.42%

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $342.9 million

Expense Ratio: 0.08%

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Vanguard Industrials ETF (VIS): ETF Research Reports

Industrial Select Sector SPDR ETF (XLI): ETF Research Reports

Fidelity MSCI Industrials Index ETF (FIDU): ETF Research Reports

iShares U.S. Industrials ETF (IYJ): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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