JP: Industrial Production

June 29, 2017 06:50 CDT

Consensus Actual Previous
Month over Month -3.2% -3.3% 4.0%
Year over Year 6.8% 5.7%

Preliminary data for May showed that Japan's industrial production index fell 3.3 on the month (seasonally adjusted), compared with an increase of 4.0 percent in April and the consensus forecast for a drop of 3.2 percent. Last month, officials had forecast output would fall by 2.5 percent month-on-month in May. In year-on-year terms, the original industrial production index increased 6.8 percent in May, up from 5.7 percent in April.

The month-on-month decline in headline production in April reflected weaker output of transport equipment, general-purpose, production and business oriented machinery, and fabricated metals. This was offset by stronger output of petroleum and coal products.

The drop in the industrial production index in May contrasts with PMI survey data which showed that conditions in the manufacturing sector improved that month. Preliminary PMI survey data released last week, however, indicate that growth in the sector weakened in June. Today's report shows that officials expect industrial output to increase 2.8 percent on the month in June before falling 0.1 percent in July.

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.