FR: Industrial Production

July 8, 2016 01:45 CDT

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

Excluding construction, industrial production fell 0.5 percent on the month in May after an unrevised 1.2 percent gain in April. The decline, which matched market expectations, put annual output growth at 0.5 percent, down from 1.8 percent last time.

In fact, underlying developments were rather more robust as manufacturing output was unchanged from its April level when it advanced a healthy 1.3 percent. By far the principal drag was refining which posted a monthly decrease of some 23.0 percent. Transport equipment (minus 1.1 percent) and food and drink (minus 0.9 percent) also struggled and the energy and extracted goods subsector (minus 3.9 percent) was particularly weak. However, machinery (1.8 percent) and the other manufactured goods category (0.4 percent) made fresh headway.

The May release puts average industrial production in April/May just 0.2 percent above its first quarter mean. However, even this modest gain is much stronger than suggested by the manufacturing PMI surveys which in recent months have consistently found the sector to be in recession.

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.