GB: Industrial Production

Tue Jul 07 03:30:00 CDT 2015

Consensus Actual Previous Revised
IP-M/M -0.2% 0.4% 0.4% 0.3%
IP-Y/Y 1.6% 2.1% 1.2%
Mfg Output-M/M 0.1% -0.6% -0.4%
Mfg Output-Y/Y 1.8% 1.0% 0.2% 0.1%

UK goods production unexpectedly expanded in May but only due to a bounce in the volatile oil and gas sector. More significantly, manufacturing output surprisingly contracted for a second consecutive month.

Total industrial production was 0.4 percent higher on the month following a marginally weaker revised 0.3 percent gain in April. Annual growth was 2.1 percent, up from 1.2 percent last time. By contrast, manufacturing posted a 0.6 percent decline to compound the unrevised 0.4 percent drop seen at the start of the quarter. Output here was 1.0 percent firmer on the year, an improvement on April's 0.1 percent increase but only due to an even steeper slide a year ago.

Within manufacturing eight of the thirteen subsectors recorded monthly decreases amongst which a 3.7 percent slump in basic metals and metal products subtracted 0.3 percentage points. The strongest increase was in basic pharmaceutical products and pharmaceutical preparations which posted a 7.9 percent jump, apparently in part due to healthy export demand.

Elsewhere overall goods output was boosted by a 4.9 percent monthly gain in mining and quarrying as well as a 0.8 percent rise in water supply, sewerage and waste management and a 0.6 percent advance in electricity, gas, steam and air conditioning.

The May data leave total industrial production over the three months to May 1.0 percent above the previous period, up from a 0.6 percent rate in April. However, comparably measured manufacturing output now shows no growth after a 0.2 percent increase last time, its weakest performance since July 2014. Accordingly, underlying trends continue to move in the wrong direction. If business surveys are anything to go by, industry confidence remains robust and expectations are for a better performance in the third quarter. However, for now at least, the goods producing sector provides further reason for supposing that the BoE is not in a hurry to hike official interest rates.

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.