ETF Trends
ETF Trends

Manufacturing, and the exchange traded funds (ETFs) that track this economic indicator fell in February for the sixth time in seven months indicating that the overall U.S. economy is still hurting. What gives?

  • One reason that the industrial production numbers continue to decline is the massive cutbacks that have hit the auto industry.
  • Another reason is the collapse in U.S. exports.
  • To top it all off, the financial crisis has choked off credit to consumers and businesses worldwide, leading to a slump in sales of cars, houses, airplanes and computers, states Bob Willis of Bloomberg.

Of all industries, the auto industry is the epicenter of the U.S. manufacturing slump. According to Autodata Corp., auto sales slipped 41% in Feburary to its lowest rate since December 1981. To add to this decline, General Motors (GM) announced that it will close an additional five plants by 2012 and is seeking an additional $16.6 billion in federal loans to help during its restructuring process. This weakness has even hit the paint industry: PPG industries (PPG) states that they will cut around 2,500 jobs as a result of weak demand from the automakers.

In regard to exports, the Commerce Department stated that the slump was caused by a decline in sales of autos, semiconductors, telecommunications gear and drilling equipment. The industries hit the hardest are the ones that make capital goods and construction-related equipment and materials.

One ETF that could feel the wrath of these numbers is the iShares Dow Jones U.S. Industrial (IYJ), which is down 20.3% year to date. But it’s up more than 4% in midday trading today on market relief over the Fed’s plan to inject another $1 trillion into the economy.

For investors bearish on the manufacturing sector, there’s the UltraShort Industrials PowerShares (SIJ), which is up 38.9% year to date.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.