U.S. Manufacturing Improves: What You Need to Know

The big macro can cause big moves in the market. What does today's headline macro news mean for your portfolio?

What's happening: The Federal Reserve Bank of Philadelphia reported that its "diffusion index of current activity" for the region's manufacturing industry improved to 8.7 in October from -17.5 in September.

In plain English, please: The Philly Fed's manufacturing gauge is simply a look at the conditions and outlook for the manufacturing industry in the eastern Pennsylvania, southern New Jersey, and Delaware area. As investors and economists try to read the tea leaves to figure out where our economy is headed, measures of manufacturing activity are a key indicator.

As far as October's reading goes, the Philly Fed probably summed it up best by saying that the numbers "suggest that regional manufacturing activity is showing signs of recovery, following several months of decline." In fact, there have been a few different manufacturing gauges that had been showing weakness in recent months, the Philly Fed's among them. While a single month's data doesn't make a trend, this could be an encouraging sign.

Stocks to watch: If manufacturing activity in that region is improving, we'd probably want to start by looking at manufacturing companies in and around that geographic area. That list would include electronic instruments manufacturer Ametek (NYSE: AME  ) , machinery manufacturer Gardner Denver (NYSE: GDI  ) , and industrial giant Honeywell (NYSE: HON  ) .

Also notable in the Philly Fed's report was the "special question" that manufacturers were asked in October. It revealed that manufacturers are increasing the share of temp workers they're using. That could suggest more business for temporary staffing firms like ManpowerGroup (NYSE: MAN  ) and Kelly Services (Nasdaq: KELYA  ) .

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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