FR: Industrial Production

Tue Oct 10 01:45:00 CDT 2017

Consensus Actual Previous Revised
Month over Month 0.4% -0.3% 0.5% 0.8%
Year over Year 1.1% 3.7% 3.9%

Goods production was surprisingly soft in August. Excluding construction, output fell 0.3 percent on the month which, even after taking on board a stronger revised 0.8 percent increase in July, was disappointingly weak. Annual growth slowed from 3.9 percent to 1.1 percent, a 4-month low.

Electronics (minus 1.4 percent) and the other manufactured goods category (minus 1.8 percent) did the damage to the overall monthly change. Falls here more than offset gains in food and agriculture (0.4 percent), refining (0.1 percent) and transport equipment (5.9 percent) and left manufacturing output 0.4 percent lower than in July when it gained 0.6 percent. Elsewhere, energy and extracted goods were flat and construction up just 0.1 percent.

The August figures put average industrial production in July/August 0.4 percent above its mean second quarter level when it advanced 1.1 percent versus the first quarter. Ignoring any revisions, output in September would need to see an implausibly sharp rebound if the sector's contribution to third quarter GDP growth is to match that of the second quarter. This puts the onus on services to fill the gap.

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.