This article was originally published on ETFTrends.com.
Industrial ETFs are building up momentum after data revealed U.S. manufacturing activity strengthened despite concerns over falling exports and global trade.
Industrials were the best performing sector on Friday, with Industrial Select Sector SPDR (XLI) up 1.8%, Fidelity MSCI Industrials Index ETF (FIDU) up 1.9%, iShares U.S. Industrials ETF (IYJ) up 1.8% and Vanguard Industrials ETF (VIS) 1.9% higher.
Industrial production, a measure of overall factory, mining and utility output, rose a seasonally adjusted 0.3% in December month-over-month while U.S. factories, which accounts for the lion's share of U.S. total industrial output, increased 1.1% last month, the biggest gain since February 2018, the Wall Street Journal reports.
Overall industrial production rose 4% year-over-year while capacity utilization, which indicates how much industries are producing compared with what they could potentially produce, was up by 0.1 percentage point to 78.7% in December, the highest reading in about four years.
Industrial Segment Growth
Supporting the growth in the industrial segment, manufacturers across a number of categories produced more last month, with vehicle and car-parts makers leading the charge. Production of appliances, clothing, and paper items also climbed.
Most “evidence concerning the manufacturing sector points to reasonably good conditions, with still solid domestic demand outweighing softer export growth,” according to Joshua Shapiro, chief U.S. economist at MFR, Inc.
The improvements in the industrial segment helped offset concerns over exports of American-made goods to foreign countries, which pulled back since May 2018 on the rising protectionist rhetoric, the trade dispute between the U.S. and China, and slowing global economy.
However, some observers warn that the global environment may be more challenging ahead.
“The incoming survey evidence still suggests that underlying manufacturing output growth is set to slow over the coming months,” Michael Pearce, senior U.S. economist at Capital Economics, said in a note to clients. “With demand in key export markets weakening, and the appreciation of the dollar also weighing on the competitiveness of U.S. manufacturers, we expect growth in the factory sector will (eventually) slow sharply in 2019.”
For more information on the industrial sector, visit our industrial category.
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