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.

RELATED TERMS
  1. Capital Goods Sector

    The capital goods sector refers to a grouping if publicly-traded ...
  2. Sector Fund

    A sector fund is a fund that invests solely in businesses that ...
  3. Sector

    A sector is an area of the economy in which businesses share ...
  4. Service Sector

    The service sector is the portion of the economy that produces ...
  5. Technology, Media, and Telecom ...

    The technology, media, and telecom (TMT) sector, sometimes also ...
  6. Financial Sector

    The financial sector is a category comprising companies that ...
Related Articles
  1. Investing

    3 Popular Industrials ETFs in 2016 (XLI, VIS)

    Compare the performances of the most popular industrials sector ETFs with their expense ratios, and consider the cost efficiency of higher management expenses.
  2. Investing

    An Introduction to Sector Mutual Funds

    Investing among several different sectors in the economy is a way to diversify your portfolio.
  3. Investing

    The 4 Largest Industrials ETFs (XLI, VIS)

    Learn about the industrials sector performance in 2016, what is driving gains in the sector, and a look at the top four largest industrials ETFs by AUM.
  4. Investing

    Time to Innovate With Industrial ETFs

    Investors are returning to a popular industrial ETF, and there are reasons to believe that more upside is ahead.
  5. Insights

    Industrials Sector: Industries Snapshot (XLI, BA)

    Discover the 12 industries that comprise the industrials sector of the Standard and Poor's 500 Index, and learn which key companies could help your portfolio.
  6. Investing

    ETFs For Sector Rotation Strategies

    Find out how exchange-traded funds can take the bumps out of your investing style.
  7. Investing

    Play The Market, Sector by Sector

    Sector ETFs are an increasingly important part of the equity ETF space and investors have hundreds to choose from.
  8. Investing

    Investment Rotation Strategies Using ETFs

    Timely rotation of your investments across multiple sectors and regions can yield higher returns. Here are the basics of investment rotation.
  9. Investing

    Spread Out Risk With Sector-Based ETFs

    These ETFs take the sector rotation strategy from institutional investors and puts it in your hands.
  10. Investing

    Global Industrial Services: Exploring Revenue Trends & Fundamentals

    Analyze geographical industrial service sector data to determine which factors influence revenue exposure by country and drive trends over time.
RELATED FAQS
  1. How are industrial goods different from consumer goods?

    Understand the difference between industrial goods and consumer goods, and learn the different types of industrial goods ... Read Answer >>
  2. What are the best mutual funds for investing in the aerospace sector?

    Discover mutual funds and some other possible investments that can be utilized by investors seeking exposure to the aerospace ... Read Answer >>
  3. What are the biggest trends affecting the profitability of the financial services ...

    Explore the trends that most affect the financial services sector, including the role of central bank policy and challenges ... Read Answer >>
  4. What is the aerospace sector?

    Learn about the aerospace sector in the United States, one of the nation's largest and most powerful industries, considered ... Read Answer >>
  5. What are the main benchmarks that track the banking sector?

    Read about the most important benchmarks that can be used to track the banking sector, and why banking benchmarks tend to ... Read Answer >>
  6. What's normal for profit margin in retail sector?

    Find out the typical profit margin for a major retail company, and learn how it compares to the profit margins for other ... Read Answer >>
Hot Definitions
  1. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  2. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  5. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
  6. Ratio Analysis

    A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
Trading Center