Despite reports of weakness in the global economy, factory activity in the U.S. expanded to its highest level since June, giving hope to the notion that the American economy is accelerating.
November's Institute for Supply Management's factory index rose to 52.7 in November, up from 50.8 in October. Readings above 50 indicate expansion, while readings below 50 indicate contraction. The reading came as a pleasant surprise to analysts, including Bloomberg News, which projected a gain to 51.8 and a Reuters poll which expected a reading of 51.5.
According to the Commerce Department, construction spending also climbed 0.8% to an annual rate of $798.53 billion, reflecting gains in housing and commercial projects.
Furthermore, "ISM report showed the measures of production and new orders climbed at the fastest rate since April. Factory inventories shrank, while a gauge of customer stockpiles climbed to the highest since March 2009."
Not yet in the clear
While the index brings hope to an economic recovery, economists warn not to get too excited too soon.
"New claims for unemployment insurance rose last week in a reminder that any healing in the country's battered labor market will be slow," notes Reuters.
Reports also suggest a contraction in global growth, and given a heavy reliance on emerging markets, a global slowdown remains a risk to American manufacturers. Reports also show the manufacturing industry has shrunk in China and Europe.
Investing ideas
Interested in following or investing on the trends of industrial companies?
We ran a screen on the most profitable large-cap industrial goods stocks traded on U.S. exchanges, with gross, operating, and pre-tax margins greater than their industry peers.
Do you think these companies will outperform?
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
1. Dover
2. Fastenal
3. Goodrich
4. Honeywell International
5. Republic Services
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Profitability data sourced from Fidelity.