JP: Industrial Production

January 30, 2017 05:50 CST

Consensus Actual Previous
Month over Month 0.3% 0.5% 1.5%
Year over Year 3.0% 4.6%

Preliminary data for December showed that Japan's industrial production index rose 0.5 percent on the month (seasonally adjusted), compared with an increase of 1.5 percent in November and the consensus forecast for an increase of 0.3 percent. Last month, officials had forecast output would increase by 2.0 percent month-on-month in December. In year-on-year terms, the original industrial production index rose by 3.0 percent in December, down from an increase of 4.6 percent in November.

Headline growth in December reflects stronger output in transport equipment, chemicals, and electronic parts and devices. This was offset by weaker output of information and communication electronics equipment.

The industrial production index has now risen in four of the last five months after sharp falls in early 2016, broadly in line with PMI survey data showing improved conditions in Japan's manufacturing sector in recent months. Trade data published last week also showed a strong increase in Japanese exports in December, suggesting that recent currency depreciation is providing support to domestic manufacturers. Officials expect further gains in industrial output in the near-term, forecasting the index to advance month-on-month by 3.0 percent in January and by 0.8 percent in February.

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.