DE: Industrial Production

February 7, 2017 01:00 CST

Consensus Actual Previous Revised
Month over Month 0.4% -3.0% 0.4% 0.5%
Year over Year -0.6% 2.1% 2.3%

Industrial production fell out of bed at year-end. Following a marginally stronger revised 0.5 percent monthly rise in November, output slumped some 3.0 percent, its worst performance since January 2009 in the midst of the Great Recession. Annual growth slumped from 2.3 percent to minus 0.6 percent, its first negative print since last July.

The monthly nosedive reflected broad-based losses amongst the major production categories. Capital goods (5.4 percent) were especially weak but consumer goods (3.1 percent) were not far behind. Intermediates (1.1 percent) held up slightly better as did energy (0.9 percent). Elsewhere construction was down 1.7 percent. Total manufacturing fell 3.4 percent after just a 0.4 percent increase in November.

The surprising weakness of the December data leaves a 0.1 percent quarterly contraction in total industrial production and a 0.2 percent decrease in manufacturing output. The former ended 2016 at its lowest level since August 2014. Fortunately, as yesterday's manufacturing orders report made clear, there would seem to be sufficient demand already in the pipeline as to ensure that January sees a solid rebound. Nonetheless, the shockingly poor end to the year will make for downside risk to fourth quarter GDP growth and analysts will now likely feel obliged to trim their estimates accordingly.

Industrial production measures the physical output of the nation's factories, mines and utilities. Data are collected from companies in the sector with fifty or more employees and include mining and quarrying, manufacturing, energy and, in contrast to its Eurozone counterpart, construction.

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 will not 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 manufacturing orders data, the production index has the advantage of being available in a timely manner giving a more current view of business activity. Those responding to the data collection survey account for about 80 percent of total industrial production. Like the PPI and the orders data, construction is excluded.

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.