GB: Industrial Production

Fri Nov 06 03:30:00 CST 2015

Consensus Actual Previous Revised
IP-M/M -0.1% -0.2% 1.0% 0.9%
IP-Y/Y 1.3% 1.1% 1.9% 1.9%
Mfg Output-M/M 0.5% 0.8% 0.5% 0.4%
Mfg Output-Y/Y -0.8% -0.6% -0.8% -0.9%

Industrial production slightly undershot expectations in September as a marginally smaller revised 0.9 percent monthly rise in August was followed by a 0.6 percent decline. Annual growth was 1.1 percent, down from 1.8 percent.

However, weakness in overall goods production masked a surprisingly sharp 0.8 percent monthly increase in manufacturing output, albeit after a minimally smaller revised 0.4 percent gain last time. The yearly fall eased from 0.9 percent to 0.6 percent. The monthly rise reflected increases in some ten of the thirteen subsectors with other manufacturing and repair, up 3.5 percent, making the largest contribution (0.2 percentage points). The steepest fall was in basic metals and metal products where output dropped 2.2 percent on the back of recent plant closures in the iron and steel industry.

Otherwise, overall industrial production was boosted by a 0.6 percent monthly increase in electricity, gas, steam and air conditioning but hit by falls in water supply, sewerage and waste management (1.1 percent) and mining and quarrying (4.9 percent).

In summary, manufacturing looks to in slightly better shape than previously thought entering the fourth quarter. That said, the sector is only expanding quite slowly and a strong showing by real GDP will need a good performance by services. Today's data yield a third quarter increase in industrial production of 0.2 percent. This is only fractionally short of the 0.3 percent advance estimated by the ONS in its provisional GDP report and so should have no implications for any revision to economy-wide output.

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.