Costs Wrecking Gains in Manufacturing Sector

Manufacturers are booking more orders and delivering higher profits in a strong U.S. economy. But investors are worried that the good times won’t last: Costs are rising at some of the biggest industrial companies due to tariffs and a super-tight labor market.

Industrial stocks are down around 2 percent this year versus a 4.8 percent rise in the S&P 500. Some of the biggest manufacturers lead the decline. Shares in Caterpillar have dropped 13 percent.

Shares in small- and medium-size companies have fared better than those of manufacturing heavyweights, but that has done little to reassure money managers.

While order books fatten and industrial outputs rise, manufacturers contend with near-record-low unemployment of about 4 percent, which is driving up wage bills and leaving some companies short of workers, holding back production.

Manufacturing unemployment is at its lowest level in 15 years, according to the Labor Department. Companies surveyed for the closely watched Chicago Business Barometer said production fell in June from a year earlier, the fourth monthly drop since December. More than a third of companies said they had boosted salaries.       Source: Wall Street Journal