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ETFs to Gain as US Industrial Output Rises in May

The latest update on U.S. manufacturing output looks impressive as the accelerated pace of coronavirus vaccine rollout is helping tame the outbreak and gradually reopen the economy. Per the Fed’s recently-released data, total industrial production rose 0.8% in May. Going on, there was a 0.9%, 1.2% and 0.2% rise, respectively, in manufacturing output, mining and utilities production.

Total industrial production rose 16.3% year over year in May. Notably, the indexes for consumer goods, business equipment, business supplies, and materials all rose about 1% last month. According to the Fed’s report, the durable manufacturing index was up 1% while the nondurable index increased 0.8%. Moreover, the index for other manufacturing (publishing and logging) rose 0.8%.

Going on, capacity utilization for the industrial sector rose 0.6% in May to 75.2%. In May, the manufacturing capacity utilization for the industry, which is the measure for studying how efficiently firms are utilizing their resources, increased 0.7% to 75.6%, per the Fed’s report.

Present U.S. Economic Scenario

The U.S. economy seems to be on the path of recovery from the pandemic-led slowdown. The decline in the number of coronavirus cases has increased optimism among market participants toward faster recovering and reopening of the U.S. economy.

Markedly, accelerated vaccine distribution, strong fiscal stimulus support and the reopening of non-essential businesses are expected to expedite the economic recovery pace. Notably, the central bank has raised its economic growth outlook considering the vaccine and stimulus optimism and even expects higher inflation this year.

Furthermore, there are certain new economic data releases, which are pointing toward economic recovery. Notably, the recently-released robust job and manufacturing data majorly buoyed market participants' optimism. The Department of Labor reported that the U.S. economy added 559,000 jobs in May compared with the upwardly revised 278,000 payrolls included in April, as mentioned in a CNBC article.

Also, the latest ISM Manufacturing PMI data for the United States is painting a rosy picture for the sector. The ISM Manufacturing PMI read 61.2 in May against 60.7 in April. May’s growth was higher than analysts’ expectations of 60.7. Moreover, manufacturing activity rose for the 12th straight month.

Meanwhile, the Commerce Department stated that U.S. retail and food services sales in May declined 1.3% to $620.2 billion following a revised reading of 0.9% rise in April. The decline was steeper than expected with reduced expenditures on areas such as automobiles, home furnishing, electronic stores and building supplies. However, demand for apparel as well as health and beauty products continues to be strong. We note that retail sales surged 28.1% from May last year.

Spooking investors, the consumer price index for May, which represents a basket of food, energy, groceries and prices across a wide range of goods, climbed 5% from the prior-year (per a CNBC article) tally. It surpassed the Dow Jones estimate of a 4.7% rise. Notably, the consumer prices for May increased at the highest speed since the summer of 2008, as stated in a CNBC article.

Investors are worried that rising inflation may hurt corporate margins and profits. They are also fearing that the consistent rise in inflation may put pressure on the Federal Reserve to tighten monetary policy, according to a CNBC article.

Industrial ETFs that May Gain

The industrial sector, which faced disruption in global supply chains and factory closedowns, is expected to rebound on recovery from the coronavirus-led slump. Against this backdrop, investors can still keep a tab on the following ETFs (see all industrial ETFs here):

The Industrial Select Sector SPDR Fund XLI

The fund tracks the Industrial Select Sector Index (read: Top ETF Investing Areas to Park Your Money in June).

AUM: $20.33 billion

Expense Ratio: 0.12%

Vanguard Industrials ETF VIS

The fund tracks the MSCI US Investable Market Industrials 25/50 Index (read: 5 Top-Ranked ETFs to Bet on After an Encouraging May).

AUM: $5.55 billion

Expense Ratio: 0.10%

iShares U.S. Industrials ETF IYJ

The fund tracks the Dow Jones U.S. Industrials Index.

AUM: $1.83 billion

Expense Ratio: 0.42%

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $884.9 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
iShares U.S. Industrials ETF (IYJ): ETF Research Reports
Fidelity MSCI Industrials Index ETF (FIDU): ETF Research Reports
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