FR: Industrial Production

September 9, 2016 01:45 CDT

Consensus Actual Previous Revised
Month over Month 0.2% -0.6% -0.8% -0.7%
Year over Year -0.1% -1.3% -1.1%

The goods producing sector followed a weak May and even worse June with another sizeable fall in output in July. After a marginally smaller revised 0.7 percent monthly decline at the end of last quarter, industrial production (ex-construction) decreased a further, and steeper than expected, 0.6 percent. This was the first time production has fallen in three consecutive months since the second quarter of 2012.

Annual growth actually improved from minus 1.1 percent to minus 0.1 percent, but this was misleadingly optimistic being biased up by an even sharper 1.7 percent contraction in the same month a year ago.

July's extended downturn included a 0.3 percent fall in manufacturing output and this would have been much worse but for a 40.4 percent surge in the volatile coke and refined petroleum products subsector. Food and drink was up 1.6 percent but there were declines in machinery and equipment (3.3 percent), transport (1.4 percent) and the other manufactured goods category (0.2 percent). Mining and quarrying, utilities and waste management (minus 2.5 percent) also hit the headline figures but construction was up fully 4.8 percent.

The latest data put July industrial production 1.3 percent below its average level in the second quarter when it contracted 0.2 percent versus the January-March period. Accordingly, with August's manufacturing PMI (48.3) less than optimistic there is every chance that goods production will again subtract from real GDP growth in the third quarter. The sluggishness of the French economy remains a major worry for the ECB.

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 cause misleadingly large short-term swings in total industrial production.

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.