The goods producing sector had a surprisingly robust November. Total industrial production jumped fully 2.1 percent on the month, the strongest increase since April and easily more than reversing a smaller revised 1.1 percent drop in October. Annual growth climbed from minus 0.9 percent to 2.0 percent.
Crucially, the rebound in overall industrial output was mirrored in the key manufacturing category which similarly posted a much larger than expected 1.3 percent monthly bounce following a marginally steeper revised 1.0 percent decline last time. Particular strength was apparent in machinery and equipment (4.2 percent), pharmaceuticals (8.2 percent) and rubber and plastics (4.3 percent). Transport equipment (2.7 percent) and other manufacturing and repair (1.1 percent) also fared well.
Total sector production was further boosted by mining and quarrying (1.3 percent), water supply (7.1 percent) and electricity and gas (4.9 percent).
The latest data put average industrial production in the first two months of the quarter 0.5 percent below the mean level in July-September. Manufacturing output over the same period is up just 0.1 percent. However, business surveys were very optimistic about December so the chances are that November's buoyancy continued through year-end. Manufacturing almost certainly made a positive contribution to fourth quarter real GDP growth and overall goods production was probably not far behind.
Industrial production measures the physical output of the mining and quarrying, manufacturing, gas and electric, and water supply and sewerage sectors. Manufacturing is seen as the best guide to underlying developments as the other subsectors can be highly volatile on a short-term basis. Estimates are largely based on a monthly business survey of roughly 6,000 companies.
Industrial and manufacturing outputs are watched carefully by market participants despite the decline in the importance of manufacturing in the UK economy. Manufacturing output is the preferred number rather than industrial production which can be unduly influenced by electrical generation and weather. The manufacturing index is widely used as a short-term economic indicator in its own right by both the Bank of England and the UK government. Market analysts also focus on manufacturing and its sub-sectors to get insight on industry performance.
Industrial production accounts for less than 16 percent of the economy within which the key manufacturing sector is worth about ten percentage points. Total manufacturing is divided into thirteen sub-sectors, ranging from food, drink and tobacco through chemicals and chemical products to electronics and transport equipment. Consequently, 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.
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.