GB: Industrial Production

Thu Aug 06 03:30:00 CDT 2015

Consensus Actual Previous Revised
IP-M/M 0.2% -0.4% 0.4% 0.3%
IP-Y/Y 2.3% 1.5% 2.1% 1.9%
Mfg Output-M/M 0.2% 0.2% -0.6%
Mfg Output-Y/Y 0.5% 0.5% 1.0%

The goods producing sector had a very modest June. Total industrial production unexpectedly fell 0.4 percent on the month after a smaller revised 0.3 percent gain in May. More importantly, manufacturing output was up a gentle 0.2 percent, in line with forecasts but only reversing a fraction of the 0.6 percent decline seen last time. Annual growth of the former slowed from 1.9 percent to 1.5 percent and of the latter, halved to 0.5 percent, its second weakest print since September 2013.

The monthly increase manufacturing output reflected gains in seven of the thirteen subsectors. Within these, basic metals and metal products (4.9 percent) enjoyed the steepest rise while pharmaceuticals (minus 10.7 percent) made the largest negative contribution.

Amongst the more volatile subsectors of overall goods production, mining and quarrying contracted 3.8 percent, its first drop since February, and electricity, gas, steam and air conditioning was down 0.3 percent. However, water supply, sewerage and waste management output grew 0.5 percent.

The ONS assumed a 1.0 percent increase in industrial production in its provisional estimate of second quarter GDP whereas today's update suggests a smaller 0.7 percent rise. However, the difference is worth less than 0.1 percentage points and so will not impact any revision. Meantime, over the same period manufacturing output declined 0.3 percent which would seem to confirm a general downshift in the sector's momentum from the heady rates seen over much of 2014.

Accordingly, with the new PMI survey indicating a sluggish July, there is little pressure from this sector on the BoE to tighten anytime soon.

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.