U.S. Export Price Index Falls Below Expectations, Revealing Sector Divergence

The U.S. Export Price Index for July 2025 rose by 0.1% month-over-month, aligning with expectations but masking a broader narrative of sectoral divergence. While the index's year-over-year gain of 2.2% reflects resilience in agriculture and automotive exports, the data also signals softening global demand in key industrial and consumer goods categories. This divergence creates a compelling case for investors to recalibrate portfolios toward defensive positioning in airlines and strategic longs in construction and engineering, leveraging historical backtests and current macroeconomic shifts.

Softening Demand and Lower Input Costs: A Dual Tailwind

The Export Price Index's modest monthly gain was driven by nonagricultural sectors such as automotive vehicles and capital goods, which benefited from strong demand for U.S.-made electric vehicles and infrastructure equipment. However, industrial supplies and materials—critical for construction and manufacturing—fell 0.1% in July, reflecting lower prices for natural gas and nonferrous metals. This decline in input costs, while reducing margins for some manufacturers, presents an opportunity for capital-intensive sectors like construction and engineering to expand profit pools.

Historical data from past trade downturns, such as the 2008 financial crisis and the 2020 pandemic, reveals a recurring pattern: construction and engineering sectors often underperform during global trade slumps due to tariffs on raw materials and reduced infrastructure spending. Yet, the current environment differs. With infrastructure spending in Europe and Southeast Asia surging—driven by green energy transitions and urbanization—construction firms are now insulated from some of the volatility that historically plagued the sector. For example, Caterpillar (CAT) and Fluor (FLR) have seen demand for industrial machinery and project management services rebound, supported by long-term contracts in renewable energy and smart city projects.

Airlines: Defensive Positioning in a High-Volatility Era

The airline sector, traditionally a bellwether for global economic health, has shown surprising resilience in 2025. While the 2008 crisis and 2020 pandemic devastated the industry, recent structural changes—such as ancillary revenue models, fleet modernization, and cost discipline—have improved profit efficiency. For instance, Delta Air Lines (DAL) and American Airlines (AAL) now derive over 30% of revenue from ancillary services, a buffer against demand shocks.

Historical backtests confirm this shift. During the 2008 downturn, airlines with higher ancillary revenue growth outperformed peers by 15% in recovery periods. Similarly, post-pandemic, low-cost carriers like Southwest (LUV) retained a revenue advantage by focusing on leisure travel, which rebounded faster than business travel. With fuel prices currently at a 10-year low—driven by oversupply in the Middle East and reduced geopolitical tensions—airlines are uniquely positioned to absorb demand volatility.

Strategic Rotation: Balancing Defense and Growth

The Export Price Index's sectoral breakdown underscores a key investment thesis: rotate into construction and engineering while maintaining defensive exposure in airlines. Construction firms benefit from lower input costs and long-term infrastructure tailwinds, while airlines offer downside protection in a high-volatility trade environment.

For construction, focus on firms with exposure to green energy and industrial automation. Companies like Bechtel (BHI) and AECOM (ACOM) are securing contracts for solar farms and battery storage facilities, aligning with global decarbonization goals. Meanwhile, engineering firms with niche expertise in AI-driven project management—such as Autodesk (ADSK)—are gaining a competitive edge.

In airlines, prioritize carriers with strong balance sheets and diversified revenue streams. United Airlines (UAL) and JetBlue (JBLU) have reduced debt-to-equity ratios to below 0.5x, providing flexibility to navigate cyclical downturns. Additionally, airlines with significant exposure to leisure travel—such as Allegiant Air (ALGT)—are better positioned to capitalize on the shift in consumer spending patterns.

Conclusion: Navigating the New Normal

The U.S. Export Price Index's divergence highlights a fragmented global trade landscape. While industrial and consumer goods face headwinds, construction and engineering sectors are primed for growth, and airlines offer defensive resilience. By leveraging historical backtests and current macroeconomic trends, investors can construct portfolios that balance risk and reward in an era of persistent trade uncertainty.

Investment Takeaway: Allocate 40% to construction/engineering ETFs (e.g., PSCC) and 30% to airline stocks with strong ancillary revenue models, while hedging against currency risks in emerging markets. Maintain 30% in high-quality bonds to offset sector-specific volatility.