Due to weak economic data and a poor stock market, investors are growing increasingly concerned over the American economic situation. Initial jobless claims remain well above 400,000 a week while the latest ISM Manufacturing Index survey showed that the production corner of the economy may be slowing down as well. Despite this rash of bad news, stocks have started to come back this week thanks to a slowdown in wholesale price increases and retail sales that came in above expectations. Thanks to these conflicting reports, today’s release of the Industrial Production level should be heavily scrutinized by investors in order to give a more complete picture of the current economic situation.
Investors are expecting a 0.2% uptick in production compared to last month, which would represent a return to growth after April’s flat performance. Of particular interest should be the auto assembly section of the survey as continuing supply disruptions from the tsunami in Japan caused the manufacturing section to slide by 0.4% in April after a 0.6% increase in March. Many will look for a return to growth for this portion, but with severe weakness in some of the regional manufacturing indexes, most notably the Philly Fed which showed an abysmal month, weakness could continue again in this most recent reading of the survey. Meanwhile, in terms of the capacity utilization rate, a figure that represents how intensely the nation’s factory resources are being used, analysts are looking for the figure to rise slightly to 77.0% from last month’s reading of 76.9%. However, it should be noted that according to Bloomberg, there is a pretty wide range of expectations so a decrease shouldn’t be ruled out completely for this metric [see all the ETFs in the Industrials ETFdb Category].
Thanks to this key data release, investors should look for the Industrial Select Sector SPDR (XLI) to be in focus during today’s trading session. The fund, which is one of the more popular ETFs in the world with just over $4 billion in AUM, tracks the Industrial Select Sector Index which includes companies from a wide variety of industries. These sectors include aerospace; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors, suggesting that the fund has a wide focus of firms that could be heavily impacted by today’s report [ETFs and Sector Rotation].
Like most corners of the market, XLI has seen a rough past few weeks of trading, and has lost close to 5.6% in the past two weeks alone, suggesting that many are growing increasingly concerned over the health of the broad American economy. Should today’s report show further weakness in manufacturing or if the capacity utilization rate slips, expect XLI to experience more weakness in today’s session. If, however, investors see more robust industrial production and a move closer to the 80% capacity utilization rate, it could signal that the economic situation isn’t as bad as initially thought, possibly leading to a solid day for this popular fund from State Street [ETF Insider: Weak Dollar Creates Opportunities].
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Disclosure: No positions at time of writing.