Industrial stocks are one of the largest indices tracking the U.S. economy. These companies are primarily manufacturers and distributors of machinery, equipment and supplies. Some of the leading companies in the sector include General Electric, Eaton Corp. and Mitsubishi Heavy Industries. The MSCI USA Industrials Index has gained 10.5% annually from 2010 to 2015. Several fund offerings track the industry. The largest is the Vanguard Industrials ETF.
This sector is a vital component of the economy, but its performance is cyclical. It has underperformed the S&P 500 by 5% in the past four months. Several factors are causing investors to question the outlook of the sector.
The United States has a long history of industrial policy. The federal government has sought to regulate wages and prices across a wide range of industries. However, these efforts have been mixed, with some success and others failing. This was most evident during World War II, when the National Recovery Administration aimed to regulate wages and prices in a variety of industries.
In addition to these traditional programs, the US also launched the Manufacturing USA initiative in 2016. This effort promotes advanced manufacturing and promotes the use of advanced technology in manufacturing. The initiative consists of more than a dozen public-private research institutes.
Some of the major sectors of the industry include aerospace, aviation, construction, and materials. The industries that produce intermediate products, like those that make chemicals, are included in the materials sector. Other important industries include agriculture, defense, and utilities. The materials sector includes companies such as Alcoa Corp. and DuPont.
Many governments have a role in regulating and planning the industry. Often, the government will impose laws on industrial pollution, vocational education, and labor law. In Europe, the tradition of industrial policy has been strong. The German government has also taken an active role in the sector.
As a result of the rapid technological advancements that occurred during the Industrial Revolution, the manufacturing industry played a significant role in the economy. Mass steel production, for example, was an important example of this. Today, a variety of industries are responding to competition from both domestic and foreign sources.
An investor’s ability to understand the trends and cycles in the sector is crucial. Most industrial goods companies raise capital through issuing shares and debentures. They are able to increase production by increasing their efficiency, allowing them to manufacture more items at lower costs. Similarly, companies in the decelerating growth phase are given higher multiples than their peers.
A key indicator of the economy’s health is the level of industrial production. The Federal Reserve has developed an industrial production index that tracks industrial output monthly. The Federal Reserve has compiled data from government agencies and private trade associations. This index is typically updated every five years. The Federal Reserve also compiles a capacity utilization index.
The manufacturing sector is important to most societies. It employs a large percentage of the population. It is an integral part of the economy, contributing about one-third of the nation’s economic activity.