FR: Industrial Production

November 10, 2016 01:45 CST

Consensus Actual Previous Revised
Month over Month -0.3% -1.1% 2.1% 2.3%
Year over Year -1.1% 0.5% 0.4%

September industrial production (ex-construction) was much weaker than expected. Even allowing for an upward adjustment to an already strong August, a monthly decline of 1.1 percent was surprisingly steep and the worst performance by the sector since February. Indeed, it was poor enough to see annual production growth slide back into negative territory at also minus 1.1 percent,

The monthly headline fall was led by machinery and equipment which was down fully 4.9 percent. Transport equipment (minus 1.9 percent) similarly had a very disappointing month and other manufacturing was off 0.4 percent. Partial offsets were provided by food and drink (0.9 percent) and coke and refined petroleum products (1.3 percent) but construction shrank 0.9 percent.

September's reversal makes for a 0.1 percent quarterly drop in overall industrial production and just a 0.2 percent rise in manufacturing output. The softness here goes some way towards explaining why quarterly real GDP growth during the period was restricted to just a provisional 0.2 percent. October's manufacturing PMI (51.3) pointed to something rather stronger at the start of the current quarter but underlying momentum still looks worryingly soft.

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.