FR: Industrial Production

Fri Jul 07 01:45:00 CDT 2017

Consensus Actual Previous Revised
Month over Month 0.5% 1.9% -0.5% -0.6%
Year over Year 3.2% 0.6% 0.1%

Industrial production (ex-construction) easily exceeded expectations in May. A 1.9 percent monthly rise was the second sharpest gain so far in 2017 and boosted annual growth from 0.1 percent to 3.2 percent, its best performance since November 2015.

Manufacturing was especially robust, posting a 2.0 percent monthly increase on the back of hefty advances in electronics and machines (2.0 percent) and, in particular, transport equipment (7.4 percent). The other manufactured goods category (1.2 percent) also had a good month and there were similarly more than respectable gains in food and agriculture (1.1 percent) and refining (1.3 percent). With energy and extracted goods up 1.0 percent, the only subsector to record a fall was construction (1.3 percent).

After a disappointing April, May's solid rebound leaves the second quarter in much better shape. Average production in April/May stands a comfortable 1.2 percent above its mean level in the first quarter. With service sector activity also apparently holding up well, second GDP growth is well placed to match the 0.5 percent quarterly rate achieved at the start of the year.

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.