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Industrial Sector: Benefits from a Rise in Manufacturing Activity

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Industrial sector gains are reflected in XLI’s surge

An increase in manufacturing activity benefits an economy’s industrial sector. The Industrial Select Sector SPDR ETF (XLI) tracks industrial performance in the US. It rose 1.01% at the close of trade on June 18. The Philadelphia Fed Business Outlook Survey came out with a very strong reading for June.

XLI is invested in US-based industrial sector firms like General Electric (GE), 3M (MMM), and United Technologies (UTX). General Electric commands a 10.24% allocation in XLI. General Electric rose 1.22%. 3M has a 5.22% allocation. It rose 1.70%, while United Technologies rose 0.72%. United Technologies commands a 5.07% share in XLI. The SPDR Dow Jones Industrial Average ETF Trust (DIA) also serves as a good gauge. It rose 1.03%.

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The Philadelphia Fed Survey

The Philadelphia Fed Survey is an important survey about economic expectations in the Mid-Atlantic and New York regions. The Philadelphia Fed Index is a diffusion index. It’s based on the number of businesses reporting rising activity less the number of businesses reporting falling activity. It also includes an index of expectations for six months out. The survey drills down into orders and shipments, employment, inventories, and prices. It also includes a special survey that changes each month. In many ways, it’s similar to the New York Fed’s Empire State Manufacturing Survey.

Manufacturing sector is strengthening in June

The Philadelphia Fed’s General Business Conditions Index is a diffusion index of manufacturing conditions. It rose 8.5 points to 15.2 for the highest reading so far this year. The shipments and unfilled orders component led the rise in the index value. Also, the reading for the delivery time component was consistent with the high levels of shipping activity reported for June. The employment component only rose marginally this month.

However, with the other manufacturing reports like the Empire State report, the Richmond Fed report, and the Kansas City report, continuing to indicate weakness in the manufacturing sector, investors should exercise cautious while investing in the sector.

A string of positive indicators from the US helps build investor confidence in the economy and its prospects. The leading index validated this point.

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