GB: Industrial Production

Tue Oct 10 03:30:00 CDT 2017

Consensus Actual Previous Revised
IP-M/M 0.2% 0.2% 0.2% 0.3%
IP-Y/Y 0.9% 1.6% 0.4% 1.1%
Mfg Output-M/M 0.2% 0.4% 0.5% 0.4%
Mfg Output-Y/Y 1.9% 2.8% 1.9% 2.7%

UK goods production performed much as expected in August. A 0.2 percent monthly increase followed a marginally firmer revised 0.3 percent gain in July and lifted annual growth of output from 1.1 percent to 1.6 percent. Production has now expanded for five consecutive months.

More importantly, the key manufacturing sector exceeded expectations with a 0.4 percent monthly advance although that did follow a slightly smaller revised increase (also 0.4 percent) last time. Solid rises in metal products (2.7 percent), pharmaceuticals (3.2 percent) and other manufacturing and repair (1.5 percent) did most of the work. However, it was not all good news as there were marked declines in electrical equipment (4.8 percent), textiles and leather (4.7 percent) and transport equipment (2.6 percent).

Total industrial production found additional support from water supply (0.4 percent) and electricity and gas (0.4 percent) but was hit by a fall in mining and quarrying (2.0 percent).

The August data mean that overall goods production rose 0.9 percent in the latest three months (manufacturing 0.7 percent). This was up from 0.4 percent in the three months to July and its strongest print since December-February. Unless September is particularly poor, the sector should make a renewed positive contribution to real GDP growth in the third quarter having subtracted in the previous period.

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.