DE: Industrial Production

Thu Sep 07 01:00:00 CDT 2017

Consensus Actual Previous
Month over Month 0.5% 0.0% -1.1%
Year over Year 4.0% 2.5%

Industrial production failed to rebound as expected in July. A flat performance versus June, when output declined an unrevised 1.1 percent, was well short of the market consensus although annual production growth still jumped a misleadingly large 1.5 percentage points to 4.0 percent courtesy of favourable base effects.

Weakness was most apparent in energy which posted a hefty 4.7 percent monthly fall and this was large enough to mask a modest 0.3 percent increase in the key manufacturing sector. Even so, capital goods compounded June's 1.5 percent decrease with a further 0.3 percent drop and consumer goods, down 0.7 percent last time, matched this decline. However, intermediates (1.4 percent) had a very solid month and construction (0.5 percent) also provided a boost.

Overall industrial production in July was 0.3 percent below its second quarter average while manufacturing was just 0.1 percent firmer. The sluggishness of the last two months contrasts with the very bullish picture painted by business surveys, notably the sector PMI. August looks likely to have been a much better period but it not, real GDP growth could disappoint this quarter as service sector activity has been lagging for a while.

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.