The goods producing sector had a surprisingly positive August. A 1.0 percent increase in output versus July (revised to minus 0.3 percent) was much stronger than market expectations and the first rise of any size since May. Annual growth improved from 0.7 percent to 1.9 percent.
More significantly, it was also a decent period for manufacturing where output was up 0.5 percent on the month following a marginally smaller revised 0.7 percent decline last time. Compared with a year ago the sector's production was still down 0.8 percent but even this constituted a marked improvement from July's steeper revised 1.2 percent contraction.
Within overall manufacturing six of the thirteen reporting subsectors posted monthly rises in output. The best performer was transport equipment which climbed 4.6 percent and alone contributed 0.4 percentage points to the change in industrial production. Metals products, which added 0.2 percentage points, also fared disproportionately well. On the downside manufacturing and repair fell 2.0 percent.
Elsewhere, total industrial production was boosted by a 6.0 percent monthly surge in the volatile mining and quarrying category, mainly reflecting an 8.7 percent bounce in crude petroleum and natural gas. Electricity, gas, steam and air condition also gained 0.3 percent but water and waste management supply dropped 2.5 percent.
Despite August's good news, the latest figures still put industrial production in the three months to August just 0.1 percent above the previous period and, on the same basis, manufacturing output 0.9 percent lower. Barring a fall in September overall industrial production will add to third quarter real GDP but economic growth looks increasingly likely to be well short of the 0.7 percent mark recorded in April-June. There remains minimal pressure from the goods producing sector for any near-term hike in Bank Rate.
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.