4 Stocks To Buy On Steady Manufacturing Expansion

The domestic manufacturing sector continued to expand in April, racking up its second straight month of gains. Despite a decline in the rate of growth, it is clear that manufacturing is on track for a steady recovery and may continue to gain in the months ahead.

A weaker dollar, higher crude prices and soft interest rates mean that conditions will continue to remain favorable for this sector. It makes good sense to select manufacturing stocks when you’re looking to make additions to your portfolio at this point.

Manufacturing Continues to Expand

The Institute for Supply Management (ISM) manufacturing index decreased from 51.8% in March to 50.8% in April, lower than the consensus estimate of 51.3%. However, it hovered above 50, the level which demarcates whether the sector is expanding or contracting. The reading in March had broken a chain of five consecutive months of contraction for the sector.

During this time, manufacturers were beset by a number of problems. These included a stronger dollar which had lowered the attractiveness of exports. Meanwhile, oil prices continued to decline leading to pressures on domestic energy companies. At the same time, the Fed made its first interest rate hike in nearly a decade.

Dollar Halts Surge, Boosts Exports

However, the tide seems to be turning for manufacturers. The dollar has declined following indications that the Fed is in no hurry to raise rates. As a result, exports have become more competitive. The ISM export index has moved up to its highest level since Nov 2014.Oil prices also gained in April due to a weaker dollar, fall in the U.S. rig count, rising gasoline consumption and supply disruptions.

These are probably the primary reasons responsible for the growth experienced by 11 of the 18 manufacturing sectors in April, according to the ISM survey. At the same time input costs have increased. The sector was spending more on raw materials in April compared with March levels. However, this has likely been factored in after a year of soft material prices and may have hit a more sustainable level.   

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