FR: Industrial Production

Thu Dec 10 01:45:00 CST 2015

Consensus Actual Previous Revised
Month over Month -0.2% 0.5% 0.1% 0.0%
Year over Year 2.4% 3.6% 1.8%

Industrial production (ex-construction) was surprisingly robust in October. A 0.5 percent monthly increase in output was markedly stronger than market expectations and easily more than enough to offset a slightly weaker revised flat reading in September. Annual growth was 3.6 percent, double its rate at end of last quarter and the best performance since May 2011.

However, the monthly advance in overall production masked a disappointingly sharp 0.5 percent contraction in the manufacturing sector, and that after a 0.1 percent fall in September. This was prompted by sizeable declines in food and drink (1.1 percent), electronics (also 1.1 percent) and transport (0.8 percent). The other manufactured goods category also slipped 0.1 percent. Consequently, the buoyancy of the headline data essentially just reflected a 5.1 percent bounce in the volatile energy/utilities sector.

Manufacturing over the last three months was still up a healthy 1.1 percent and overall industrial production 1.4 percent. That said, business surveys were less than optimistic about developments in November, signalling both slower growth and stagnation in orders. The goods producing sector may be expanding but underlying trends remain sluggish.

Industrial production measures the physical output of the nation's factories, mines and utilities. Manufacturing is seen as the best guide to underlying developments as some sectors can be very volatile and have a misleading impact on the total industrial production reading.

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. 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.