GB: Industrial Production

Wed Jun 10 03:30:00 CDT 2015

Consensus Actual Previous Revised
IP-M/M 0.1% 0.4% 0.5% 0.6%
IP-Y/Y 0.6% 1.2% 0.7% 1.1%
Mfg Output-M/M 0.1% -0.4% 0.4%
Mfg Output-Y/Y 0.4% 0.2% 1.1% 1.2%

Overall industrial production expanded a surprisingly large 0.4 percent on the month in April after a slightly stronger revised 0.6 percent rise in March. Annual growth was 1.2 percent, a tick above the rate at the end of the first quarter.

However, the monthly increase here masked an unexpected 0.4 percent drop in manufacturing output that reduced its yearly advance from 1.2 percent to just 0.2 percent, its worst performance since September 2013. Seven of the thirteen subsectors saw monthly decreases in output within which the steepest was posted by basic pharmaceuticals (6.0 percent). This alone subtracted some 0.3 percentage points from the monthly change in overall manufacturing output. The main positive impact was made by chemicals where production rose 1.6 percent.

Consequently, the monthly gain in total industrial production came from elsewhere, specially a 5.6 percent spurt in mining and quarrying and a 0.9 percent rise in water supply, sewerage and waste management. Together these easily more than offset a 3.3 percent drop in electricity, gas, steam and air conditioning.

April's generally disappointing data put industrial production in the last three months 0.6 percent above the previous period's level and manufacturing output just 0.2 percent firmer. Revisions mean that first quarter industrial production was a little higher than originally thought but not to the extent that would impact GDP

Today's results look rather weak in the context of generally still quite upbeat business surveys. That said, the same surveys have also pointed to some cooling in goods sector activity and it is clear that the heady growth rates seen in 2014 are a thing of the past.

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.