Manufacturing sector growth shows strength in indicator readings

Market Realist

Key economic releases this week could impact your ETF investments (Part 2 of 7)

(Continued from Part 1)

The importance of the manufacturing sector

Although the manufacturing sector accounts for close to 13% of gross domestic product (or GDP), it forms the backbone for its industrial development in the economy. Apart from providing employment opportunities in the economy, the growth of manufacturing machinery output, and technological improvements in that machinery, are one of the main drivers of economic growth. Most jobs, directly or indirectly, depend on manufacturing. According to the Economic Policy Institute (or EPI), each manufacturing job supports almost three other jobs in the economy.

Also, manufacturing is central to global trade. According to the World Trade Organization (or WTO), 80% of world trade among regions is merchandise trade. Only 20% of world trade is in services. In fact, many services like retail, real estate, and even health are dependent on manufactured goods like apparel, building, and medical equipment.

The manufacturing sector in the U.S.

The manufacturing sector in U.S. is strengthening, as indicated by the Chicago-PMI Index, the Dallas Fed Manufacturing Index, the Markit PMI Manufacturing Index, and the ISM Manufacturing Index readings that released earlier this week.

The performance of Industrials exchange-traded funds (or ETFs) like the SPDR Industrial Select Sector Fund (XLI), which has companies like General Electric Co. (GE) and Boeing Co. (BA) in its portfolio, the Vanguard Industrials Index Fund (VIS), and the iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ), serve as a good indicators with respect to the industrial sector.

Continue reading the next sections in this series to learn how the manufacturing sector in U.S. if faring at the moment.

Continue to Part 3

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