5 Industrial Stocks To Bet On Despite Trade War Jitters

The pace of growth in the U.S manufacturing sector was the slowest in two and half years in May, primarily affected by the escalating trade war concerns between the United States and China. Per the Institute for Supply Management’s latest report, Purchasing Managers’ Index (PMI) for May came down to 52.1% from 52.8% registered in April and also fell short of the market expectations of 53%.

The manufacturing index has plunged from the high of 60.8% in August 2018 and is currently languishing at its lowest levels over the past 12 months. The latest reading reflects weakest pace of expansion in the manufacturing sector since October 2016 as production growth slumped to its weakest since August 2016 and backlog of orders contracted for the first time since January 2017.

The New Orders Index registered 52.7% in May, up from 51.7% in April. The sector has witnessed growth in new orders for 41 straight months. The Backlog of Orders Index was 47.2% in May, lower than the 53.9% reported in April – the lowest level of performance since October 2016. The production Index was 51.3% in the month, dropping from 52.3% in April but still continued to improve for 33 straight months. The employment index was pegged at 53.7%, up from the April reading of 52.4% and sustaining growth for the 32nd consecutive month.

The implementation of tariffs on steel imports into the United States last year dealt a severe blow to the manufacturing stocks. Given that steel is a primary raw material, every company involved in manufacturing bore the brunt of rising steel prices owing to tariffs. Though this can be mitigated to some extent with price increases, it might not always be feasible to pass on the price increase to customers.

Recently, the Trump administration announced that it will impose a 5% tariff on all imported goods from Mexico beginning June 10. Trump plans to gradually increase that tax to 25% until the flow of undocumented immigrants across the border stops. This new concern regarding a U.S. trade dispute with Mexico along with the ongoing U.S. trade war with China have traders and investors on tenterhooks. Further, the industry has been plagued with shortage of skilled laborers, higher wage costs and flaring-up transportation expenses for quite some time now.

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