FR: Industrial Production

Thu Aug 10 01:45:00 CDT 2017

Consensus Actual Previous Revised
Month over Month 0.5% -1.1% 1.9%
Year over Year 2.5% 3.2% 3.1%

Goods production (ex-construction) was disappointingly weak in June. Following an unrevised 1.9 percent monthly bounce in May, output surprisingly fell 1.1 percent, its worst performance since February. Annual growth slowed from 3.1 percent to 2.5 percent, matching its rate in March.

The key manufacturing sector held up a little better although even here production was 0.9 percent lower than in May. Transport equipment (minus 4.4 percent) did most of the damage but there were also falls in electronics and machines (2.7 percent) and food and agriculture (0.7 percent). Refining (4.4 percent) and the other manufactured goods category (0.2 percent) provided a partial offset. Elsewhere, energy and extracted goods posted a 2.2 percent drop while construction was off 0.6 percent.

The June data make for a 1.2 percent quarterly rise in overall industrial production, a marked improvement on the first quarter's 0.2 percent contraction. Manufacturing was up a solid 1.3 percent. The monthly production data can be erratic but the second quarter rise is consistent with the recent optimistic signals from the PMI and INSEE surveys. The same reports also suggest that July provided a respectable start to the current quarter.

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.