JP: Industrial Production

August 30, 2016 06:50 CDT

Consensus Actual Previous
Month over Month 0.8% 0.0% 1.9%
Year over Year -0.5% -1.8%

July industrial production disappointed. It was unchanged on the month and down 0.5 percent from the same month a year ago. Expectations were for a monthly increase of 0.8 percent. The result is a disappointing start to the third quarter especially after decent data yesterday. This could add pressure to the Bank of Japan to take action and ease monetary policy further.

Transport equipment was up 1.2 percent after adding 1.8 percent in June. Electronic parts & devices were up for a second month, this time by 1.5 percent after increasing 1.6 percent in June. Electrical machinery was 1.6 percent higher on the month after increasing 1.1 percent the month before.

However, chemicals excluding drugs reversed direction and declined 1.4 percent after increasing 3.8 percent in June. Fabricated metals dropped 3.0 percent after jumping 5.7 percent in June. General-purpose, production & business oriented machinery declined 07 percent after increasing 0.4 percent in June.

The government is forecasting August output to jump a monthly 4.1 percent but for September, output is expected to decline 0.7 percent.

Industrial Production measures the physical output of the nation's factories, mines and utilities. Factories manufacture various products, and the industrial production indexes have been prepared as a comprehensive indicator of wide-ranging production activities for such products and are regarded as some of the most important among economic indexes.

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.

Industrial production provides key industry data for this export-dependent economy. The data are issued twice a month-a preliminary estimate at the end of the month for the preceding month and a revised estimate about two weeks later. All products, whether sold domestically or abroad, are included in the calculation of industrial production. Industrial production is highly sensitive to the business cycle and can often predict future changes in employment, earnings and income. For these reasons industrial production is considered a reliable leading indicator that conveys information about the overall health of the economy. 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.