Outside of the datacenter subsegment, it has been a challenging few years for industrial activity as measured by leading economic indicators. In recent months, leading indicators such as the ISM Purchasing Managers Index (PMI), Freight Rates, and the Dodge Momentum Index (DMI), have begun to show improvement. With inventory destocking seemingly having run its course and election uncertainty now in the past, we believe there is a path forward for continued improvement in these indicators.

The ISM Purchasing Managers Index:
A monthly economic indicator used to measure business activity in the United States manufacturing sector. The PMI is a diffusion index, meaning that a reading above 50.0 indicates expansion and below 50.0 indicates contraction.

In January 2025, the ISM index had a reading of 50.9 (Exhibit 1) marking the first reading above 50.0 since October of 2022. The index was below 50.0 for twenty-six consecutive months, which is a longer period than during the Great Financial Crisis of 2008-2009. The New Orders component of ISM showed a reading of 55.1 (Exhibit 2) which is the highest since May 2022. We view these readings in ISM as a positive indicator for industrial activity.

Exhibit 1: ISM Index

Source: FactSet Research Systems

Exhibit 2: ISM Index New Orders Component

Source: FactSet Research Systems

Cass Inferred Freight Rates:
A monthly economic indicator used to gauge the overall movement in the cost per shipment of freight in North America. Calculated as expenditures divided by shipments from a diversified dataset among all modes of transportation with truckload (TL) representing more than half the dollars, followed by less-than-truckload (LTL), rail, and parcel.

In January 2025, the Cass Inferred Freight Rate index increased 4.3% year-over-year (Exhibit 3) which was an acceleration from a 3.3% increase in December 2024. These mark the first year-over-year increases after twenty-four consecutive months of declines and we view this as a positive indicator for industrial activity.

Exhibit 3: Cass Inferred Freight Rates

Source: Cass Information Systems, Inc.

Dodge Momentum Index:
A monthly economic indicator that is a measure of nonresidential building projects in the planning process. The DMI is often viewed as a 12-month leading indicator for the commercial and institutional building segments.

During January 2025, the DMI had a reading of 225.7 (Exhibit 4) marking a high level. While datacenter has had a large index, the last report highlighted that if all datacenter projects between 2023 and 2025 were removed, the commercial planning component would be up 13% year-over-year while the entire DMI would be up 11%. We view this as a positive indicator of activity.

Exhibit 4: Dodge Momentum Index

Source: Jefferies

If there is continued improvement in these indicators, we see the potential for flows to rotate towards industrials with short or early-cycle exposure. We continue to search for exposure to these early cycle industrials within our growth funds.