U.S. Factory Orders Rebound In May: 5 Top-Ranked Picks

On Jul 3, the Commerce Department reported that the U.S. factory orders for the month of May rebounded and entered the positive territory following a stiff decline in April. The increase in May marked the third rise in the past four months. This indicates that the U.S. manufacturing sector, which constitutes around 12% of its GDP, is increasing capital spending driven by massive tax overhaul, deregulatory measures, and strong domestic & global economy.

The worldwide demand for manufacturing products is on the rise. U.S. manufacturing industry is benefiting from strong global demand, which is leading to a sharp rise in factory orders. Against this backdrop, it will be prudent to invest in stocks that are poised to gain from the solid factory orders data.

Robust Factory Orders in May

U.S. factory orders rose 0.4% in May, buoyed by strong demand for machinery and military wares. This was in contrast to a 0.4% (after revision) decline in April. New orders for U.S. manufactured goods in May increased $1.8 billion to $498.2 billion. Meanwhile, shipments of manufactured goods inched up 0.6% ($2.8 billion) to $496.1 billion. This marked the 12th month of increase in the last 13 months.

On Jul 2, the Institute for Supply Management (ISM) reported that the U.S. manufacturing index rose to 60.2% in June from 58.7% in May. The June reading was highest in last four months as well as better than the consensus estimate of 58.4. Notably, readings over 50% indicate more companies are expanding instead of shrinking. Per the ISM report, 17 out of 18 industries witnessed expansion last month.

Immediate Concerns

The U.S. manufacturing sector is currently plagued with three concerns. First, tariffs imposed on steel and aluminum and several industrial intermediary products have raised input costs. Moreover, ongoing trade-related conflicts between the United States and its major trading allies like China, European Union, Canada, Mexico, to name a few are deteriorating with each passing day. As a result of these trade conflicts, U.S. exports have become vulnerable to retaliatory tariffs.

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