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Industrial & Manufacturing
What Is the Industrial & manufacturing Sector?
The industrial goods sector is a category of stocks of companies who produce capital goods used in construction and manufacturing. Businesses in the industrial goods sector make and sell machinery, equipment, and supplies that are used to produce other goods rather than sold directly to consumers.
Understanding the Industrial Goods Sector
The industrial goods sector includes companies involved with aerospace and defense, industrial machinery, tools, lumber production, construction, waste management, manufactured housing, and cement and metal fabrication. Performance in the industrial goods sector is largely driven by supply and demand for building construction in the residential, commercial, and industrial real estate segments, as well as the demand for manufactured products.
When the economy contracts during recessions, activity in this sector drops because companies postpone expansion and produce fewer goods. However, with this sector covering a wide range of subsectors, there is usually at least one area of growth in the industrial goods sector. 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 when they pay attention to the industry trends and progression 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.
Many of the subsectors go through bullish growth cycles lasting for years before seeing a retraction. For example, the aerospace and homebuilding sectors have both gone through these cycles. Other areas, such as industrial conglomerates and waste management, have provided steady streams of revenue generation.
Manufacturing (Still) Matters
... and Australians Know It. Australian manufacturing has endured hard times for several years. So long, in fact, that Australians could be forgiven for concluding that industrial decline is a “normal” state of affairs.
The manufacturing sector has been in broad decline since 2008, and real output has now contracted every single quarter since September 2011. Over 200,000 manufacturing jobs have disappeared since 2008, and the rate of job loss is accelerating: employment fell 6 percent in 2015 alone. Announcements of factory closures and redundancies add to the gloom.
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