The goods producing sector was a little stronger than expected in March. Total industrial production rose a solid 0.5 percent on the month following an unrevised 0.1 percent increase in February for annual growth of 0.6 percent, up from its 18-month low of 0.1 percent last time. Manufacturing was not far behind with a 0.4 percent rise versus February to stand 1.1 percent higher on the year, a tick down on its mid-quarter rate.
However, within manufacturing only six of the thirteen reporting subsectors posted monthly gains. The strongest contribution was made by basic pharmaceutical products and pharmaceutical preparations where output jumped 6.7 percent and added 0.3 percentage points to the headline change. Other manufacturing and repair also contributed 0.2 percentage points but there were small negative effects from a number of other categories.
Overall production was further boosted by a 2.6 percent monthly bounce in the volatile mining and quarrying subsector, mainly reflecting a surge in crude petroleum and natural gas (4.9 percent). However, help here was almost offset by falls in water and waste management (0.3 percent) and electricity, gas, steam and air conditioning (1.1 percent).
The March report puts both first quarter industrial production and manufacturing output just 0.1 percent above their respective fourth quarter levels. Although still surprisingly soft compared with forecasts made just a few months ago, the minimal gain in total goods production was still stronger than the 0.1 percent quarterly decline estimated in the provisional January-March GDP accounts. This implies a small (less than 0.1 percentage point) upward revision to economic output later this month.
April was not a particularly good month for manufacturing if the sector PMI is to be believed and growth of new orders slowed. In general businesses still seem quite optimistic but a buoyant pound, all the more so in the wake of last week's surprise general election result, is clearly taking its toll on exporters.
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.