Industrial production failed to rebound as expected in November. Rather, a 0.1 percent monthly fall followed a steeper revised 0.3 percent drop in October to leave annual growth of 1.1 percent, just a tick above the rate at the start of the quarter.
However, the decline in overall industrial output masked a stronger than expected performance by manufacturing which posted a healthy 0.7 percent monthly increase, equalling its sharpest gain since February. The yearly rise in the sector's production was 2.7 percent, up from 1.7 percent last time.
Within manufacturing ten of the thirteen subsectors recorded a rise in output. Amongst these other manufacturing and repair (1.8 percent) made the largest contribution. Weakness was most apparent in machinery and equipment which sank 3.1 percent.
Elsewhere, mining and quarrying dropped a hefty 3.7 percent versus October as crude petroleum and natural gas slumped 5.5 percent. Electricity, gas, steam and air conditioning was also off 1.3 percent and water supply, sewerage and waste management decreased 0.4 percent.
The latest data put both total industrial production and manufacturing output in the three months to November 0.4 percent above their respective levels in the previous period. In the main businesses still seem quite optimistic but with construction spending falling 0.9 percent over the same time horizon, fourth quarter real GDP growth probably slowed somewhat from the 0.7 percent quarter rate it registered in July-September.
Industrial production measures the physical output of the mining and quarrying, manufacturing, gas and electric, and water supply and sewerage sectors.
Industrial and manufacturing outputs are watched carefully by market participants despite the decline in the importance of manufacturing in the UK economy. Manufacturing output is the preferred number rather than industrial production which can be unduly influenced by electrical generation and weather. The manufacturing index is widely used as a short-term economic indicator in its own right by both the Bank of England and the UK government. Market analysts also focus on manufacturing and its sub-sectors to get insight on industry performance.
Industrial production accounts for less than 16 percent of the economy within which the key manufacturing sector is worth about ten percentage points. Total manufacturing is divided into thirteen sub-sectors, ranging from food, drink and tobacco through chemicals and chemical products to electronics and transport equipment. Consequently, this report has a big influence on market behavior. In any given month, one can see whether capital goods or consumer goods are growing more rapidly. Are manufacturers still producing construction supplies and other materials? This detailed report shows which sectors of the economy are growing and which are not.
Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that won't lead to inflationary pressures. By tracking economic data such as industrial production, investors will know what the economic backdrop is for these markets and their portfolios.