GB: Industrial Production

Thu Aug 10 03:30:00 CDT 2017

Consensus Actual Previous Revised
IP-M/M 0.2% 0.5% -0.1% 0.0%
IP-Y/Y -0.1% 0.3% -0.2%
Mfg Output-M/M 0.2% 0.0% -0.2% -0.1%
Mfg Output-Y/Y 0.8% 0.6% 0.4% 0.3%

Goods production was superficially rather stronger than expected in June. A 0.5 percent monthly increase followed a downwardly revised flat reading in May and lifted annual growth from minus 0.2 percent to 0.3 percent, the first positive print since March.

However, manufacturing output showed no monthly change. Within this, healthy rises in pharmaceuticals (3.3 percent), chemicals (3.5 percent) and other manufacturing and repair (4.0 percent) were essentially offset by declines in machinery and equipment (4.3 percent), transport equipment (3.6 percent) and rubber and plastics (1.9 percent).

Elsewhere within total industrial production, electricity and gas dropped 0.9 percent but water supply was up 0.8 percent and mining and quarrying 4.1 percent.

Today's report puts second quarter industrial production 0.4 percent below its first quarter level and manufacturing output down a steeper 0.6 percent. These figures have no implications for any revision to the provisional estimate of second quarter real GDP growth (0.3 percent) but confirm a poor period for the factory sector. The current quarter should see a rebound but there seems to be a trend cooling in business activity.

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.