After a prolonged period of contraction, U.S. manufacturing witnessed growth for the first time in 18 months in March. The Institute for Supply Management (ISM) reported Manufacturing Purchasing Managers' Index (PMI) of 50.3, marking the first reading above 50 since September 2022.

Production levels surged, driving the rebound, while new orders also saw a notable increase. Despite the overall growth, employment in the manufacturing sector remained subdued, with the employment sub-index indicating continued contraction, though at a slower pace. Input prices for manufacturers rose, leading to increased inflationary pressures at the factory gate.

Despite a shift in consumer spending towards services, demand for goods remained robust, supporting the rebound in manufacturing activity. Despite concerns over disruptions from international events, such as attacks on shipping in the Red Sea, there were no apparent supply-chain constraints affecting manufacturing operations.

Against this backdrop, below we highlight a few ETF investing areas that look decent against the current backdrop.

Industry ETFs in Focus

Chemicals iShares U.S. Basic Materials ETF IYM

The space is currently experiencing improvement in orders. Performance continues to defy projections of a downturn in activities as demand remains soft. The underlying Russell 1000 Basic Materials RIC 22.5/45 Capped Gross Index measures the performance of the basic materials sector of the U.S. equity market. The fund charges 40 bps in fees.

Transportation iShares U.S. Transportation ETF IYT

Survey for Transportation equipment revealed that there is an anticipation for the rise in both orders and production during the second quarter. Transportation stocks are likely to witness improved margins for the remainder of the year and position the industry for growth in 2025. The fund has a Zacks Rank #2 (Buy).

Machinery Industrial Select Sector SPDR ETF XLI

Survey for the Machinery industry indicated that there's been a notable uptick in the number of manufacturing companies being pursued for acquisition by larger entities such as established companies and investment firms. The fund has a Zacks Rank #2.

Aerospace and Defense iShares U.S. Aerospace & Defense ETF ITA

The aerospace and defense market remains on an upward trajectory, with demand surpassing supply. The underlying Dow Jones U.S. Select Aerospace & Defense Index measures the performance of the aerospace and defense sector of the U.S. equity market.

Zacks Investment Research

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