The U.S. manufacturing sector slowed in March 2018 from the preceding month. Per trading economics, Supply Management’s Manufacturing PMI in the United States dropped to 59.3 in March from February’s 14-year high of 60.8, falling shy of market expectations of 60.1.
Five out of six key components registered sequential declines. Trump’s imposition of tariffs on steel and aluminum is a major concern across the supply chain, if we go by the comments of industry experts. Trump announced a 25% tariff on steel imports and 10% for aluminum early March.
Industry players indicated that the tariff announcement resulted in panic buying, which in turn raised near-term prices and caused a decline in inventories for non-contract customers. Added to this, inventories and imports were adversely affected by severe weather, Asian holidays and transportation glitches owing to driver and equipment shortages, per tradingeconomics.
Demand Remains Steady
Overall, demand stayed steady as evident from the New Orders Index at 60 or above for eleven consecutive months and the Customers’ Inventories Index at its lowest level since July 2011. The Backlog of Orders Index is on a 14-month expansionary streak. Raw materials prices have been rising for the 25 months in a row.
Of the 18 manufacturing industries, 17 recorded an increase in March with Fabricated Metal Products, Plastics & Rubber Products, Computer & Electronic Products, Paper Products, Printing & Related Support Activities, Nonmetallic Mineral Products and Transportation Equipment deserving a special mention.
Whatever be the readings, the manufacturing industry is in decent shape. According to an economist at Capital Economics, “the near-term prospects for the manufacturing sector and the broader economy still appear brighter than they have been at any point over the past five years,” quoted on Reuters.
Against this backdrop, we zeroed in on a few ETF areas in the light of the latest manufacturing report. These funds could be useful plays in the near term.
ETFs Likely to Stay Strong Even as Manufacturing Slows: Breakwave Dry Bulk Shipping ETF (BDRY)
Since new orders growth is decent, shipping demand should remain steady. The report also indicates an uptick in freight prices in March.
In the view of such factors, Breakwave Dry Bulk Shipping ETF (NYSEARCA:BDRY), which looks to offer exposure to the daily change in the price of dry bulk freight futures, is poised to benefit.
ETFs Likely to Stay Strong Even as Manufacturing Slows: Guggenheim MSCI Global Timber ETF (CUT)
Notably, 15 out of 18 industries registered growth in new orders in March, with Wood Products topping the list.
The underlying index of the Guggenheim MSCI Global Timber ETF (NYSEARCA:CUT), the MSCI ACWI IMI Timber Select Capped Index, tracks the performance of stocks that are into the ownership and management of forests and timberlands and production of finished products which use timber as raw material.
ETFs Likely to Stay Strong Even as Manufacturing Slows: ETFMG Video Game Tech ETF (GAMR)
Computer & Electronic Products
No doubt, the tech space is currently in the doldrums, thanks to trouble in FANG stocks. However, the underlying fundamentals are pretty strong. Be it new order growth or production, the area is a sweet spot.
The underlying index of the ETFMG Video Game Tech ETF (NYSEARCA:GAMR), the EEFund Video Game Tech Index, tracks companies actively involved in the electronic gaming industry, including the entertainment, education and simulation segments. However, the fund maybe a risky bet given the current selloff. But investors with a strong stomach for risks might opt for it.
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