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Consumer Goods Orders Fail to Revive Sector Performance

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Manufacturers’ new orders for consumer goods and materials

New orders for the consumer goods and materials sectors, important leading indicators for any economy, are used for the Conference Board Leading Economic Index (or LEI). Investors in this sector need to observe changes in the number of new orders as they indicate future demand. An increase in production boosts the number of hours worked and wages, which improves spending and savings. This sector includes companies such as Procter & Gamble (PG), Coca-Cola (KO), and Walmart (WMT), which employ a considerable number of employees.

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Recent data release and impact on the LEI

Manufacturers’ new orders for consumer goods and materials rose to 136,821 in July from 136,625 in June. New orders for manufacturers have a 4.1% weight in the LEI, and contributed 0.01 points in July.

Performance of the sector

Investing in ETFs with focus on this sector is a convenient way to gain exposure to the sector’s performance. The SPDR Consumer Staples Select Sector ETF (XLP) and the Vanguard Consumer Staples ETF (VDC) have the most assets under management. These funds’ performance has been lagging in the last month, with both funds losing close to 3%. However, year-to-date, they have remained positive. The recent spike in risk aversion led to losses for the sector, but the continued uptrend in manufacturing orders should help stall any fall. In the next part of this series, we’ll analyze how the ISM[1.Institute for Supply Management] New Orders Index has affected the LEI.

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