EMU: Industrial Production

Wed Oct 14 04:00:00 CDT 2015

Consensus Actual Previous Revised
Month over Month -0.5% -0.5% 0.6% 0.8%
Year over Year 1.8% 0.9% 1.9% 1.7%

Industrial production (ex-construction) turned out to be much as expected in August. However, a 0.5 percent monthly drop was still disappointing and although output was up a larger revised 0.8 percent in July, annual workday adjusted growth still slowed from 1.7 percent to 0.9 percent, a 4-month low. Worryingly, output has now only expanded once in the last five months.

That said, performances differed quite markedly between the major production subsectors. Hence, monthly reversals in capital goods (1.0 percent), non-durable consumer goods (0.1 percent) and energy (minus 3.0 percent) contrasted with gains in durable consumer goods (2.3 percent) and intermediates (0.2 percent).

The monthly headline decline reflected a poor month for three of the four larger states. Germany (minus 1.1 percent), Italy (minus 0.5 percent) and Spain (minus 1.3 percent) all struggled leaving France (1.6 percent) as the only member of this group to register a gain. Indeed, easily the majority of Eurozone countries posted falls although at least annual growth was positive in all bar Estonia (minus 2.7 percent), the Netherlands (minus 8.9 percent) and Finland (minus 2.3 percent).

The August data mean that average July/August Eurozone industrial production (ex-construction) was only 0.2 percent above its second quarter mean. Unless September registers a decline (or previous months are revised weaker) the sector will make a positive contribution to economic growth last quarter. However, it is likely to be only small and real GDP probably struggled to match the 0.4 percent rate it achieved in April-June.

This indicator measures the physical output of factories, mines and utilities for the 19 EMU members. The measure preferred by the ECB excludes construction which is released a few days later.

Industrial production measures changes in the volume of output for the EMU's member states. The industrial production index provides a measure of the volume trend in value added at factor cost over a given reference period, excluding VAT and other similar deductible taxes. The preferred number is industrial production excluding construction. As with other EMU statistics, the data are provided by the national statistics offices to Eurostat (the European Union statistical agency) where it is combined to produce an overall output measure.

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.