War in the Gulf Again Imperils Factory Sector

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Maybe the handwriting was on the wall. In the last war with Iraq, the economy came to a virtual standstill, with industrial production declining steadily from September 1990 until March 1991, when it hit bottom, falling nearly 4% year over year.

We probably shouldn't be surprised, then, to find that manufacturing activity seems to be grinding to a halt during Iraq redux as well. The anecdotal data, no matter how volatile or reliable, aren't particularly encouraging. February new-home sales plunged 8.1% to their lowest level since August 2000. Durable goods orders for last month were also weak, falling 1.2%, or 2.7% if you exclude strong results in the defense sector.

With the travel industry paralyzed and airlines in financial distress, it's no secret that the commercial aerospace market is in a deep recession. And when auto sales are released next week, there probably won't be much to get excited about there, either. Usually, this would mark a good time to be buying industrial stocks, which have fared poorly relative to the overall market for quite some time. Many now trade at attractive valuations, particularly for longer-term investors. ...