Will a Rise in New Manufacturers’ Orders Drive Markets Higher?
Manufacturers’ new orders for consumer goods
Manufacturers’ new orders are one of leading indicators in the Conference Board Leading Economic Index (or LEI). The economic model used to construct this index uses manufacturers’ new order data because the number of new orders drive manufacturers to increase production.
A rise in production increases the number of hours worked and wages, which in turn improve spending and saving. Investors in consumer staples ETFs such as the SPDR Consumer Staples Select Sector ETF (XLP) and the Vanguard Consumer Staples ETF (VDC) should pay close attention to this specific economic release.
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Recent data release
According to the recent economic data release, the number of manufacturers’ new orders for consumer goods and materials rose to 136,483 in June, compared to 136,272 in May. These orders have been rising consistently since December 2016, with only one fall in May.
The uptick in this indicator supports the Federal Reserve’s view that the economy will pick up starting in 2Q17. Manufacturers’ net contribution of new orders to The Consumer Board LEI for June stands at 0.01, or 1%.
Major companies that form part of this sector include Procter & Gamble (PG), The Coca-Cola Company (KO), and Walmart (WMT). XLP has returned 6.6% in the last six months. With new orders continuing to rise, it’s likely that this sector will remain upbeat, and new economic data will continue to help improve the LEI.
In the next part of this series, we’ll analyze how the ISM Manufacturing New Orders Index has affected the LEI.