FR: Industrial Production

October 7, 2016 01:45 CDT

Consensus Actual Previous Revised
Month over Month 0.4% 2.1% -0.6% -0.5%
Year over Year 0.5% -0.1%

In line with its German neighbour, August was a particularly good period for French industrial production. Goods output (ex-construction) jumped a much sharper than expected 2.1 percent versus July to easily more than reverse that period's marginally steeper revised 0.5 percent decline. As a result, annual production growth climbed from minus 0.1 percent to 0.5 percent, its strongest reading since April.

August's bounce was broad-based with just refining (minus 1.0 percent) posting a monthly loss. Electronics and machines (7.4 percent) stood out but there were solid gains too in transport equipment (3.2 percent), food and agriculture (0.6 percent) and the other manufactured goods category (1.1 percent). Overall manufacturing output was up fully 2.2 percent after just a 0.2 percent decline last time. Elsewhere, energy and extracted goods were up 1.6 percent but construction dropped 2.6 percent following a 3.4 percent spike in July.

Today's data are much stronger than suggested by the August PMI (48.3) which found a fifth consecutive contraction in production. However, even August's surge left average total industrial production in the latest two months 0.2 percent below its second quarter mean. Consequently, with September only likely to see at most a small advance, third quarter goods output is unlikely to achieve anything much better than just modest growth. Still, even this would be an improvement on the second quarter's 0.2 percent contraction.

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.