EMU: Industrial Production

Thu Nov 12 04:00:00 CST 2015

Consensus Actual Previous Revised
Month over Month 0.1% -0.3% -0.5% -0.4%
Year over Year 0.8% 1.7% 0.9% 2.2%

Eurozone industrial production was soft in September. Although August's decline was revised a tick shallower, a 0.3 percent monthly fall in output (ex-construction) comfortably undershot market expectations and left production at its lowest level since January. Annual workday adjusted growth slipped from 2.2 percent to 1.7 percent, a 3-month trough.

The main area of weakness was consumer goods within which durables slumped some 3.9 percent versus August while non-durables were down 1.0 percent. Capital goods also decreased 0.3 percent and although intermediates at least held steady, the headline drop would have been sharper still but for a 1.2 percent bounce in energy.

Regionally much of the damage was caused by Germany where output contracted a monthly 1.2 percent, compounding a 0.8 percent drop last time. However, France and Italy both posted modest 0.2 percent gains and Spain advanced 1.4 percent, albeit after a 1.3 percent nosedive in August. Elsewhere performances were mixed but of note was a sizeable 1.4 percent decrease in Portugal, ominously the third fall in the last four months.

September's data put third quarter Eurozone industrial production (ex-construction) just 0.1 percent above its level in the second quarter when it fell 0.2 percent. Accordingly, today's report confirms a disappointingly small contribution from the goods producing sector to third quarter economic growth and, at least as worrying, also warns of a loss of momentum entering the current period.

Tomorrow's flash third quarter GDP report looks all the less likely to impress and, while inflation (or rather the lack of it) may be the ECB's most pressing concern, speculation about additional QE and an interest rate cut in December should continue to build.

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.