# Understanding and Investing in the Industrial Goods Sector

## What Is the Industrial Goods Sector?

The industrial goods [sector](https://www.investopedia.com/ask/answers/05/industrysector.asp) is a major part of the economy, consisting of companies that produce [capital goods](https://www.investopedia.com/terms/c/capitalgoods.asp) (machinery, equipment, and supplies) used in manufacturing, construction, and the production of goods and services.

This sector includes subsectors such as aerospace, construction, and home building, with performance often tied to economic cycles, expanding in growth periods and slowing during recessions. Major companies in the sector drive innovation and infrastructure development, and investors can access them through individual stocks, mutual funds, or ETFs.  

### Key Takeaways

*   The industrial goods sector involves companies that manufacture products like machinery and equipment, essential for manufacturing, construction, and services.
*   Unique growth cycles within the sector mean different subsectors flourish at different times, often correlating with broader economic trends.
*   Major companies such as Honeywell, Boeing, and Caterpillar operate in this sector, indicating its significance in the global economy.
*   The sector's performance can heavily influence stock indexes like the Dow Jones Industrial Average, reflecting its economic importance.
*   Investment opportunities in this sector include individual stocks, mutual funds, and various ETFs, offering investors diverse options.  
    

## Deep Dive into the Industrial Goods Sector

As noted above, the industrial goods sector is made up of companies involved in the [manufacturing](https://www.investopedia.com/terms/m/manufacturing.asp) and construction of finished goods and services. These are products that are used directly by consumers. The sector includes companies involved with manufacturing capital goods, such as aerospace and defense goods and building products.

When the [economy](https://www.investopedia.com/economy-4689801) 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](https://www.investopedia.com/terms/s/stock-cycle.asp) are accelerating growth, decelerating growth, accelerating decline, and decelerating decline. Investors do well when they pay attention to the industry [trends](https://www.investopedia.com/terms/t/trend.asp) and progression of the growth cycle. Companies in the phases of accelerating growth and decelerating decline often perform best and receive higher valuations due to their growth potential.

Many of the subsectors go through [bullish](https://www.investopedia.com/terms/b/bullmarket.asp) growth cycles lasting for years before seeing a retraction. For instance, aerospace and homebuilding have experienced these cycles. Meanwhile, industrial [conglomerates](https://www.investopedia.com/terms/c/conglomerate.asp) and waste management have generated steady revenue.

> **Important**
>
> The sector's performance largely depends on demand for construction in various real estate segments and for manufactured products.

## Key Stats of the Industrial Goods Sector

The [Bureau of Labor Statistics (BLS)](https://www.investopedia.com/terms/b/bls.asp) is a valuable resource for investors and analysts at the sector level. The industrial goods sector is listed as the goods-producing industry and is broken down by subsector in its reports.

The BLS offers data on employment, [union](https://www.investopedia.com/articles/economics/09/unions-workers.asp) membership, growth projections, wages, and workplace injuries. Investors can use these statistics to gauge growth cycles. As of April 2024, the industry employed 21.82 million people, including 15.54 million people in production and non-supervisory roles.

The [U.S. Census Bureau](https://www.investopedia.com/terms/b/bureauofcensus.asp) publishes monthly data on new orders of capital goods, broken down into various subsectors, which can provide powerful insights into long- and short-term trends in the industrial goods sector. The agency reported new orders of capital goods totaling $100.42 billion.

## Exploring the Subsectors Within the Industrial Goods Sector

As noted above, the industrial goods sector includes the following subsectors:

*   Aerospace and defense
*   Industrial machinery and tools
*   Lumber production
*   Construction
*   Waste management
*   Manufactured housing
*   Cement and metal fabrication

The industrial goods sector includes some of the largest companies in the United States. Some examples include Honeywell ([HON](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HON)), Union Pacific ([UNP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UNP)), Caterpillar ([CAT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CAT)), 3M ([MMM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MMM)), and Boeing ([BA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BA)).

The [Dow Jones Industrial Average (DJIA)](https://www.investopedia.com/terms/d/djia.asp) is a widely-watched benchmark index in the U.S. containing 30 blue-chip stocks, weighted heavily to the industrial goods sector. When the index initially launched in 1896, it included only 12 companies. Those companies were primarily in the industrial sector, including the [railroads](https://www.investopedia.com/articles/stocks/11/primer-on-railroad-sector.asp), cotton, gas, sugar, tobacco, and oil.

In the early 20th century, the performance of industrial companies was typically tied to the overall growth rate in the economy. That cemented the relationship between the [index's](https://www.investopedia.com/terms/i/index.asp) performance and that of the overall economy. Even today, a strong-performing Dow equals a strong economy while a weak-performing Dow indicates a slowing economy for many investors.

## Investment Strategies for the Industrial Goods Sector

The MSCI USA Industrials Index is the common benchmark for the industry. As of April 30, 2024, the index returned 10.11% over ten years and 10.93% over five years. The index is made up of 96 constituents with a median [market capitalization](https://www.investopedia.com/investing/market-capitalization-defined/) of $29.95 billion.

Investors can invest in individual industrial goods stocks or look to mutual funds and [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). Fund offerings cover the entire industrial goods sector and some cover subsectors of the industry as well, such as aerospace. The Industrial Select Sector SPDR Fund and Vanguard Industrials ETF are two of the [largest funds tracking the sector](https://www.investopedia.com/sector-concentration-of-top-mid-cap-etfs-5225884).

## How Important Is the Industrial Goods Sector?

Even though consumers and other end users don't have a direct interaction with the industrial goods sector, it is a very critical part of the economy. That's because it provides the capital goods (equipment, machinery, etc.) needed for goods and services producers to make the planes, trucks, clothing, tools, and other things we need in our daily lives.

## What Are Capital Goods?

Capital goods are products that are used to manufacture and produce goods and services. Also known as durable goods, capital goods are tangible fixed assets like machinery, buildings, and equipment. Capital goods can also include assets that aren't fixed, such as devices (digital imaging systems) and those used in the service industry, such as painting tools and musical instruments.

## What Are Some Companies in the Industrial Goods Sector?

Some of the world's major companies fall in the industrial goods sector. They include Honeywell, 3M, Caterpillar, and Boeing. These companies make capital goods that other firms use to produce final consumer goods.

## The Bottom Line

The industrial goods sector is a cornerstone of the economy, producing the capital goods, like machinery, equipment, and tools, essential for manufacturing everything from cars and planes to construction materials and consumer products.

This broad sector includes subsectors such as aerospace, construction, and waste management, which often perform differently during economic cycles. While some areas are sensitive to downturns, others remain steady due to ongoing demand. For investors, opportunities in this sector include stocks, mutual funds, and ETFs, with performance often reflecting broader economic trends.

> **Article Sources**
>
> 1.  S&P Dow Jones Indices. "[Sector Primer Series: Industrials](https://www.spglobal.com/spdji/en/documents/education/education-sector-primer-series-industrials.pdf)," Page 1.
>     
> 2.  U.S. Bureau of Labor Statistics. "[Industries at a Glance - Goods-Producing Industries](https://www.bls.gov/iag/tgs/iag06.htm)."
>     
> 3.  United States Census Bureau. "[Table 1. Durable Goods Manufacturers' Shipments and New Orders](https://www.census.gov/manufacturing/m3/adv/pdf/table1a.pdf)."
>     
> 4.  MSCI. "[MSCI USA Industrials Index (USD)](https://www.msci.com/documents/10199/0d61c7a8-8b95-4de5-a9b8-e4edbc63ab68)," Pages 1-2.