FR: Industrial Production

Fri Jul 10 01:45:00 CDT 2015

Consensus Actual Previous Revised
Month over Month 0.4% 0.4% -0.9% -0.8%
Year over Year 2.1% 2.8% -0.1% 0.2%

Industrial production (ex-construction) rose 0.4 percent on the month in May. The increase, which matched market expectations, followed a smaller revised 0.8 percent drop in April and was the first gain since February. With base effects particularly favourable, annual growth accelerated sharply, hitting 2.8 percent and equalling its highest mark since May 2011.

May's monthly advance was led by manufacturing where output was up 0.6 percent. Transport equipment (2.3 percent) enjoyed an especially robust period and there were gains too in electronics and machines (0.3 percent) and the other manufactured goods category (0.8 percent). However, food and agriculture contracted 0.5 percent and the volatile refining subsector fell 2.7 percent. Construction increased 1.0 percent.

Despite a decent May, average industrial production in the first two months of the quarter was 0.4 percent below its first quarter mean. Output will have to jump in excess of 1 percent in June just for the second quarter to match its previous period's level. With the June manufacturing PMI weighing in at only 50.7 and INSEE's manufacturing sentiment index losing ground, this seems unlikely so the chances are that goods production subtracted from overall real GDP growth. This increases the likelihood that the economy failed to match its 0.6 percent first quarter growth rate.

Industrial production measures the physical output of the nation's factories, mines and utilities. Manufacturing is seen as the best guide to underlying developments as some sectors can be very volatile and have a misleading impact on the total industrial production reading.

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. Like the PPI and the orders data, construction is excluded from the data. 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.