IT: Industrial Production

Fri Sep 11 03:00:00 CDT 2015

Consensus Actual Previous Revised
Month over Month 0.5% 1.1% -1.1% -1.0%
Year over Year 0.9% 2.7% -0.3%

The goods producing sector comfortably exceeded expectations in July. A 1.1 percent monthly increase in output ex-construction followed a minimally smaller revised 1.0 percent drop in June for annual workday adjusted growth of 2.7 percent, up from minus 0.3 percent at the end of the second quarter. The monthly profile remains volatile but the trend at least appears to be mildly positive.

July's monthly bounce, the sharpest since June 2014, was reassuringly broad-based. The erratic energy subsector (7.1 percent) led the way but there were tidy gains too in consumer goods (1.0 percent), capital goods (0.3 percent) and intermediates (0.6 percent).

July's data put overall industrial production (ex-construction) 0.7 percent above its average level in the second quarter when it climbed 0.5 percent versus the January-March period. Moreover, while August's manufacturing PMI (53.8) saw its lowest level since April, it still indicated further healthy increases in both output and, importantly, new orders. Accordingly it looks as if goods production should provide useful support to third quarter GDP growth. That said, the sector still has a long way to go to get anywhere near its pre-Great Recession peak in April 2008. Compared with then, output is still down some 24 percent.

Industrial production measures the physical output of the nation's factories, mines and utilities. Approximately 4,300 companies provide data on more than 9,000 monthly flows of production.

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 will not 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.