This week, several key economic data releases from both demand-side and supply-side variables will be issued. The releases will cover manufacturing, retail, automobiles, and employment. Most of the focus this week will be on the key releases of the Purchasing Managers Index (or PMI), as well as job creation statistics, which are key to determining the future course of monetary policy. Construction spending, which will release on Tuesday, will also play a role in determining whether the boom in the housing sector is set to continue.
Demand-side indicators to be released this week
Supply-side releases slated for this week
This week also marks the beginning of a new quarter, which, for many, will be a relief due to the ambiguity of readings in the last quarter, when data became complicated due to weather conditions.
Other factors remaining constant, an increase in both demand-side and supply-side related activity would imply the overall economy is expanding. An increase in production and new orders would especially benefit manufacturing companies, as it would directly translate to top-line growth. ETFs with exposure to the industrial sector include the State Street Industrial Select Sector SPDR (XLI). An increase in production and new orders would also significantly benefit companies in the transportation and logistics businesses due to the trickle-down effect that increased manufacturing activity generates. The top holdings in XLI include railroad companies such as Union Pacific Corp. (UNP) and United Parcel Service Inc. (UPS).
An increase in the manufacturing PMI would also imply the economy is recovering, and, other things remaining constant, interest rates could increase faster than expected. The Fed at its recent FOMC meeting has indicated that it will raise the base rate sometime between Q2 and Q4 2015. If economic data releases indicate a faster-than-expected recovery, this would push the rate increase nearer. One way investors can benefit from higher rates is by investing in floating-rate fixed income ETFs like the Market Vectors Investment Grade Floating Rate ETF (FLTR) and the SPDR Barclays Cap Investment Grade Floating Rate ETF (FLRN). As interest rates rise, these ETFs will benefit, as their interest rates aren’t fixed but benchmarked to a reference rate and reset at periodic intervals.