The Industrial Select Sector SPDR ETF, of which Caterpillar is a component, was up nearly 3% Monday thanks in part to the good PMI reading.
Justin Sullivan/Getty ImagesInvestors received even more good news to start the month of March: The manufacturing recovery is humming along.
The Institute for Supply Management’s Manufacturing PMI, a key measure of activity in the sector, came in at 60 for February, a very strong reading. The index bottomed out at a reading of around 41 in April 2020 when economic lockdowns prompted by the pandemic began and has been averaging in the high 50s for the past few months. Any level above 50 generally indicates growth.
New orders grew faster in February compared with January. That’s the same trend for production, employment, and customer backlog. “Backlog numbers hit near term records,” said ISM Manufacturing Business Survey Committee chair Tim Fiore on a Monday morning call. “Demand was very good.” Customer inventories are still low, indicating that supply chains are stretched.
The pricing index hit 86 in February. That’s its highest reading since May 2008. Input costs are rising and so are the prices manufacturers are charging. “People are taking the increases to support the output,” Fiore told Barron’s, pointing out that steel and aluminum prices have increased recently. Steel prices, for instance, have risen almost 58% over the past three months. Oil prices are up almost 40% over the same span.
The Industrial Select Sector SPDR ETF (ticker: XLI) was nearly 3% higher Monday in part due to the report. The S&P 500 and Dow Jones Industrial Average were up about 2.3% each. The 10 biggest components of that industrial sector ETF are the largest U.S. industrials: Honeywell International (HON), Union Pacific (UNP), Caterpillar (CAT), Boeing (BA), United Parcel Service (UPS), General Electric (GE), Raytheon Technologies (RTX), Deere (DE), 3M (MMM) and Lockheed Martin (LMT).
UPS is the only one of those stocks that has fallen over the past three months. On average, those 10 stocks have risen about 12% during that time, better than the 6% comparable return of the S&P 500.
More gains should be ahead for industrial stocks and the sector if the recovery continues. “The manufacturing economy is doing well,” said PMI’s Fiore.
Write to Al Root at allen.root@dowjones.com
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