US Manufacturing PMI Data Highly Disappointing: ETFs In Focus

The latest report on U.S. manufacturing data failed to cheer investors on Jun 3. Reports covering U.S. manufacturing activity were released by two different organizations, namely the Institute for Supply Management (ISM) and the IHS Markit. While the reading of U.S. manufacturing PMI from ISM reflected the lowest reading since summer 2016, Markit’s U.S. manufacturing data suggested of weakest pace of expansion in the space since September 2009.

However, the organizations believe that the ongoing trade war is slowly taking a toll on the manufacturing sector, as evident from slowing demand and weakness in new orders.

What do the Numbers Say?

The ISM Manufacturing PMI in the United States may drop to 52.1% in May 2019 from 52.8% in April, below the median forecast of 53 per Bloomberg’s survey. The New Orders Index came in at 52.7%, in comparison with April’s reading of 51.7%. The Production Index was 51.3%, down from April’s reading of 52.3%. The Employment Index was 53.7% as compared with 52.4% in April. While exports expanded, imports were observed to decline in May. U.S. manufacturers using existing inventories and decreasing dependence on abroad-based suppliers led to the decline in imports.

Of the 18 manufacturing industries, 11 reported growth in May. The categories that witnessed solid growth are Printing & Related Support Activities, Furniture & Related Products, Plastics & Rubber Products, Textile Mills, Miscellaneous Manufacturing, Electrical Equipment, Appliances & Components; Computer & Electronic Products, Chemical Products, Food, Beverage & Tobacco Products, Nonmetallic Mineral Products, and Machinery.

Meanwhile, the six industries that reported contraction in May are Apparel, Leather & Allied Products, Primary Metals, Petroleum & Coal Products, Wood Products, Paper Products, and Fabricated Metal Products.

IHS Markit US Manufacturing PMI came in at 50.5% in May 2019, missing the preliminary estimate of 50.6%. It also lagged April’s level of 52.6%. According to this data firm,new orders declined for the first time since August 2009. Moreover, employment increased at the slowest pace since March 2017.

In fact, Chris Williamson, economist at IHS Markit commented on the situation that “May saw U.S. manufacturers endure the toughest month in nearly 10 years, with the headline PMI down to its lowest since the height of the global financial crisis.”

United States Not the Only Sufferer

Globally, manufacturers have been observed to be struggling. Manufacturing activities in Eurozone are slowing down with declining industrial output. Germany has witnessed a decline in output and new orders. Moreover, Britain’s factory growth was observed to shrink in May 2019 for the first time since June 2016. Moreover, Brazil, China and Spain’s manufacturing activities appear to have hit stagnancy and on the verge of contraction. Per an article on The Guardian, manufacturing activities are contracting in countries like South Korea, Japan, Taiwan, Malaysia and Russia.

However, per economists, the slowdown in global growth may turn into recession if the Sino-US trade war intensifies.

ETFs in Focus

Against this backdrop, we highlight some industrial ETFs that have lost substantially in the past month (see all industrial ETFs here).

Industrial Select Sector SPDR Fund XLI –– down 6.6%.

iShares U.S. Industrials ETF IYJ — down 6.1%

John Hancock Multifactor Industrials ETF JHMI — down 7%

iShares U.S. Aerospace & Defense ETF (HM:ITA) — down 3.5%

Invesco S&P 500 Equal Weight Industrials ETF (ASX:RGI) — down 6.5%

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>