FR: Industrial Production

August 10, 2016 01:45 CDT

Consensus Actual Previous
Month over Month 0.2% -0.8% -0.5%
Year over Year -1.3% 0.5%

Goods production (excluding construction) unexpectedly shrank in June. Following an unrevised 0.5 percent monthly decline in May, output ended the quarter with a sizeable 0.8 percent decrease, its poorest performance since February. Annual growth dropped from 0.5 percent to minus 1.3 percent, its weakest mark since November 2014.

Worse still, the production in the key manufacturing sector was down fully 1.2 percent on the month. Weakness was broad-based and food and agriculture (0.3 percent), refining (12.4 percent), electronics and machinery (2.6 percent), transport equipment (1.7 percent) and other manufactured goods (0.8 percent) all posted declines. Indeed, the data would have looked worse but for a 1.9 percent bounce in volatile energy and extracted goods subsector. Construction (minus 0.2 percent) also had a poor month.

Thanks to a strong April, the June data left total industrial production last quarter only 0.1 percent below its January-March level (manufacturing minus 0.2 percent and construction minus 0.1 percent). Even so, weakness here helps to explain why overall economic growth has dried up. Ominously too, the July manufacturing PMI (48.6) pointed to no improvement at the start of the current quarter although the national central bank is currently forecast real GDP growth of 0.3 percent.

In any event, the French economy is still struggling on its recovery path and any policy help, be it monetary or fiscal, would not go amiss.

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.