The industrial goods sector (often shortened to “industrials”) is the portion of the economy made up of companies that design, manufacture, sell and service capital goods — durable equipment and machinery used by other businesses to make final products or to carry out construction and transportation. Examples of capital goods include heavy machinery, factory equipment, aircraft, railroad locomotives, construction materials, and industrial controls.
Key takeaways
– Industrials produce capital goods used by other businesses (not primarily consumer-facing finished goods).
– The sector is cyclical: demand is tied to business investment, construction activity and broader GDP growth.
– Sub‑sectors include aerospace & defense, machinery, construction and building products, transportation (rail, trucking), industrial conglomerates, waste management and commercial services.
– Investors can gain exposure with individual stocks, mutual funds and ETFs that track sector benchmarks (e.g., MSCI USA Industrials) or specific subsectors.
– Useful macro/industry indicators: durable goods orders, new orders for capital goods, PMI, capex spending, and employment data in goods‑producing industries.
Understanding the industrial goods sector (how it works)
– Primary role: produce capital goods and equipment used by manufacturers, builders and service providers. These are typically durable, high‑value items with long useful lives.
– Cyclicality: industrial activity expands when businesses invest, build and replenish. During recessions companies defer capital expenditures, so industrials often see sharper revenue and profit swings than defensive sectors.
– Growth cycles and subsector rotation: different subsectors move through growth and decline phases at different times (e.g., aerospace booms with higher airline travel and defense budgets; homebuilding benefits from low interest rates and strong housing demand). Investors who recognize where a subsector sits in its cycle can better time exposure.
– Data sources: Bureau of Labor Statistics (BLS) provides employment and sector‑level metrics; U.S. Census Bureau publishes monthly durable goods/new orders; MSCI and S&P Dow Jones publish sector benchmarking and index performance.
Important sector statistics (select figures, April 2024 data points)
– Total employed in goods‑producing industries: ~21.82 million (April 2024), including ~15.54 million in production and non‑supervisory roles (BLS).
– U.S. Census Bureau reported roughly $100.42 billion in new orders for capital goods (durable goods new orders — timing and table vary by release).
– MSCI USA Industrials Index: 10‑year return ~10.11% and 5‑year return ~10.93% as of April 30, 2024 (MSCI).
(See source list at the end for links to the original data.)
Subsectors of the industrial goods sector
Common subsectors include:
– Aerospace & defense (aircraft, defense systems)
– Machinery (construction, mining, factory equipment)
– Construction & building products (materials and components)
– Homebuilding and building contractors
– Transportation (railroads, trucking, logistics)
– Industrial conglomerates (diversified manufacturers)
– Commercial services & waste management (facility services, environmental services)
Each subsector has different demand drivers (e.g., defense budgets, housing starts, freight volumes).
How important is the industrial goods sector?
– Critical: industrials supply the tools and equipment that underpin most other production in the economy — everything from cars and apparel to food and infrastructure.
– Economic indicator: performance is strongly correlated with GDP and business investment cycles. Major U.S. benchmark indices like the Dow Jones Industrial Average have historically been heavily weighted toward industrials because the sector’s fortunes reflect overall economic health.
What are capital goods?
– Capital goods (durable goods) are tangible assets used to produce other goods or services: machinery, buildings, large equipment, vehicles, industrial tools, and some specialized devices. They differ from consumer goods in that they are not primarily purchased by end consumers for day‑to‑day use.
Examples of companies in the industrial goods sector
Large, diversified names include Honeywell (HON), Caterpillar (CAT), 3M (MMM), Boeing (BA), and Union Pacific (UNP). These firms produce equipment, components and services that many other businesses rely on.
How to invest in the industrial goods sector — practical steps
1) Define your objective and horizon
• Are you looking for cyclical growth, income (dividends), or defensive exposure within industrials? Time horizon affects whether you target individual cyclicals or broad ETFs.
2) Choose exposure method
• Individual stocks: use for targeted bets on specific subsectors or companies. Requires deeper company-level research.
• Sector ETFs/mutual funds: provide diversified exposure across the sector (examples: Industrial Select Sector SPDR Fund — XLI, Vanguard Industrials ETF — VIS). These are lower effort and reduce single-company risk.
• Subsector funds: target aerospace, transportation, or machinery if you want concentrated exposure.
3) Do sector and company research (checklist)
• Macro indicators: durable goods orders, new orders for capital goods, ISM Manufacturing PMI, construction starts, freight volumes.
• Order book/backlog trends and backlog/quarterly revenue conversion.
• Revenue and margin trends, backlog, free cash flow and capex needs.
• Balance sheet health — leverage and liquidity, given cyclicality.
• Government exposure (defense contracts) and regulatory risks (export controls, tariffs).
• Industry cycles: where is the subsector in its growth/decline cycle? Look at industry investment and capacity utilization.
• Valuation: P/E, EV/EBITDA, price-to-book relative to history and peers; watch for higher multiples during accelerating growth phases.
• Dividend history and payout sustainability.
4) Portfolio construction & risk management
• Diversify across subsectors or use ETFs to avoid concentrated single-stock risk.
• Size position relative to your overall portfolio risk tolerance (cyclicals can be volatile).
• Use dollar‑cost averaging if timing is uncertain.
• Consider hedging strategies or stop-loss rules if you hold large concentrated positions.
5) Monitor leading indicators and rebalance
• Track durable goods orders, PMI, order backlogs, housing starts and freight indicators to anticipate turning points.
• Rebalance periodically (e.g., annually or when allocations deviate materially) and trim winners if you want to realize gains and control sector concentration.
Practical checklist for analyzing an industrials stock
– Is demand for its products cyclical or secular?
– What does the company’s order backlog look like? Growing, stable or shrinking?
– How capital‑intensive is the business — high capex vs. light?
– Profit margin trends: improving or compressing?
– Cash generation and capital allocation: is management buying back stock, paying dividends, reinvesting for growth?
– Exposure to commodity prices, tariffs, labor shortages or supply chain constraints.
– Contract structure: fixed‑price vs. cost‑plus (affects margin volatility).
– Government/defense dependency (if relevant): stable contract revenue but potential political risk.
Risks to consider
– Cyclical volatility tied to business investment and economic cycles.
– Supply-chain disruptions and rising raw material costs.
– Interest-rate sensitivity (higher rates can slow housing and capex).
– Geopolitical risk for global supply chains and aerospace/defense.
– Technological change that can disrupt legacy businesses.
The bottom line
The industrial goods sector is a backbone of modern economies, supplying the capital goods and infrastructure used to produce most other goods and services. It is cyclical and diversified across subsectors, so investors should combine macro‑level indicators (durable goods orders, PMI, capex trends) with company‑level analysis (orders, margins, balance sheet) when evaluating opportunities. For most investors, sector ETFs offer a cost‑effective diversified entry; more active investors can rotate into subsectors based on where they are in the growth cycle. Monitor leading economic indicators and maintain disciplined portfolio risk management.
Sources and further reading
– Investopedia. “Industrial Goods Sector” (source article):
– U.S. Bureau of Labor Statistics. Industries at a Glance — Goods‑Producing Industries:
– U.S. Census Bureau. Durable Goods Manufacturers’ Shipments and New Orders (monthly reports): /
– MSCI. MSCI USA Industrials Index factsheet (sector benchmarking)
– Build a short watchlist of industrials stocks/ETFs tailored to your investment objective (growth, income, or balanced).
– Pull recent durable‑goods and PMI data and show what it implies for the sector right now.