Navigating Sector Rotation: Capitalizing on Resilient Consumer Finance Amid Weak Industrial Demand

The U.S. Capacity Utilization Rate—a critical barometer of industrial health—has dipped to 77.57% in Q2 2025, underscoring a broader narrative of underutilized manufacturing and mining capacity. While this figure may seem modest, it reveals a stark divergence in sectoral performance. Investors must now pivot their focus from the struggling industrial core to the resilient consumer finance sector, where demand remains robust despite macroeconomic headwinds.

The Weakness in Industrial Sectors: A Call for Caution

The manufacturing sector, currently at 76.79% utilization, lags 1.5 percentage points below its historical average. This underperformance is compounded by the utilities sector, which has plummeted to 69.61%, a 2.3-point quarterly drop. These numbers signal a structural slowdown in capital-intensive industries, driven by tepid demand for durable goods and energy.

Consider the printing-writing paper segment, which has seen a 6.9% utilization decline in 2024. Traditional industries are being outpaced by digital transformation, leaving investors with a clear warning: overexposure to these sectors could erode returns.

Consumer Finance: The Bright Spot in a Dull Economy

In contrast, the Consumer Finance sector maintains a utilization rate of 87.4%, a testament to its adaptability. This segment thrives on the back of e-commerce growth, rising credit card usage, and a shift toward digital banking. Companies like Discover Financial Services (DFS) and American Express (AXP) are prime beneficiaries of this trend, as consumers increasingly prioritize convenience and rewards over traditional banking models.

The resilience here isn't just anecdotal. Consumer finance firms are leveraging low interest rates and a still-healthy labor market to expand their customer bases. For investors, this means prioritizing financials that cater to the modern consumer's appetite for digital-first services and flexible credit options.

Sector Rotation: Where to Position Your Portfolio

The key takeaway? Rotate out of underperforming industrial sectors and into consumer finance and packaging/tissue products. The latter, part of the forestry industry, has shown surprising resilience due to e-commerce demand and hygiene trends. Procter & Gamble (PG) and International Paper (IP) are examples of companies benefiting from this shift.

1. Underweight Industrial Sectors: Reduce exposure to manufacturing and utilities. These sectors face structural challenges, including automation-driven labor shifts and energy transition costs.
2. Overweight Consumer Finance: Allocate capital to financials with strong digital ecosystems and fee-based revenue models.
3. Bet on Packaging Resilience: The e-commerce boom ensures continued demand for packaging materials, making this a defensive play in a volatile market.

The Bottom Line: Adapt or Be Left Behind

The U.S. economy is no longer a one-size-fits-all story. While industrial sectors grapple with underutilization, consumer finance and packaging are thriving. Investors who fail to rotate their portfolios risk being blindsided by sector-specific downturns.

Right now, the action is in the consumer-driven economy. Position your portfolio to reflect that reality—before the next earnings report reminds you that the market doesn't wait for analysis.