What is the 'Industrial Goods Sector'

The industrial goods sector is a category of stocks that relates to producing goods used in construction and manufacturing. This sector includes companies involved with aerospace and defense, industrial machinery, tools, lumber production, construction, waste management, manufactured housing, cement and metal fabrication. Performance in the industrial goods sector is largely driven by supply and demand for building construction, such as residential, commercial and industrial, as well as the demand for manufactured products.

BREAKING DOWN 'Industrial Goods Sector'

When the economy contracts and consumers save more and spend less, activity in this sector drops because companies postpone expansion and produce fewer goods. With the industry covering a wide range of subsectors, there is usually at least one area of growth in the industrial goods sector. Many of the subsectors go through bullish growth cycles lasting for years before seeing a retraction. Examples of this are aerospace and homebuilding. Other areas such as industrial conglomerates and waste management have provided steady streams of revenue generation.

Industrial Goods Cycle

The industrial goods sector goes through life cycles that see different subsectors in growth phases. The major stages of the growth cycle are accelerating growth, decelerating growth, accelerating decline and decelerating decline. Investors do well paying attention to the industry trends and position of the growth cycle. Companies in the accelerating growth and decelerating decline phases have the best performance and are given higher multiples due to their upcoming growth.

Tracking Industrial Goods Statistics

The Bureau of Labor Statistics (BLS) is a valuable resource to investors and analysts for sectors. The industrial goods sector is listed as a whole and broken down by subsector in reports. The BLS provides information such as employment, union membership, growth projections, hourly wages and fatalities/injuries. The statistics can be interpreted and used to find growth cycles by investors.

Large Industrial Goods Companies

Some of the largest companies in the United States are placed in the industrial goods sector. General Electric ranked 11th on the 2015 Fortune 500 list of top revenue-producing companies with $140.4 billion. It has been a staple on the Fortune 500, making the top 10 every year since 1995 until it fell to 11th in 2015.

Ways to Invest in Industrial Goods

The MSCI U.S. Industrials Index is the common benchmark for the industry. This index has gained an average of 10.5% annually from 2010 to 2015. Investors can invest in individual industrial goods stocks or look to mutual funds and exchange-traded funds (ETFs). There are fund offerings that cover the entire industrial goods sector and some that cover subsectors of the industry such as aerospace. The Industrials Select SPDR Fund and Vanguard Industrials ETF are two of the largest funds. The ETFs were founded in 1998 and 2004, respectively.

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