DE: Industrial Production

Wed Apr 06 01:00:00 CDT 2016

Consensus Actual Previous Revised
Month over Month -1.9% -0.5% 3.3% 2.3%
Year over Year 0.4% 1.2% 2.3% 1.8%

Following its (downwardly revised) jump at the start of the year, goods production fell away in February. However, a 0.5 percent monthly contraction was much shallower than market expectations and only saw annual growth slide from 1.8 percent to 1.2 percent.

Outside of the volatile construction subsector (1.3 percent), monthly falls in output were widespread with only intermediates (0.1 percent) managing an increase in output and that was just minimal. Both capital and consumer goods recorded a 1.0 percent decline and energy was off 1.8 percent.

Even so, the solid start to the year ensured that average industrial production in January/February was still a very respectable 2.0 percent above its mean level in the fourth quarter when it decreased 0.4 percent versus July-September. Over the same period manufacturing was up 1.9 percent.

Accordingly, and assuming no major setback in March, it looks as if goods production should make a useful positive contribution to first quarter GDP growth. Certainly it seems likely that manufacturing outperformed the decidedly sluggish performance suggested by the PMI surveys. That said, the worry is that future output growth will slow in line with what has become a softening trend in new orders. At this stage, the outlook for the second quarter is much less positive.

Industrial production measures the physical output of the nation's factories, mines and utilities. Data are collected from companies in the sector with fifty or more employees and include the construction sector.

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.

Like the manufacturing orders data, the production index has the advantage of being available in a timely manner giving a more current view of business activity. Those responding to the data collection survey account for about 80 percent of total industrial production. Like the PPI and the orders data, construction is excluded.

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.