DE: Industrial Production

Tue Nov 07 01:00:00 CST 2017

Consensus Actual Previous
Month over Month -0.6% -1.6% 2.6%
Year over Year 3.5% 4.5%

The goods producing sector had a poor September. Following an unrevised 2.6 percent monthly surge in August, output fell a larger than expected 1.6 percent, its steepest drop since last December. The reversal reduced annual production growth from 4.5 percent to 3.5 percent, a 3-month low.

Outside of construction (0.4 percent) all of the major subsectors posted monthly losses. The worst performer was energy (4.3 percent) ahead of capital goods (2.7 percent) and intermediates (0.8 percent). Consumer goods were down 0.3 percent while overall manufacturing matched the headline 1.6 percent decline.

September's setback left third quarter industrial production 0.9 percent above its level in the second quarter when it rose 1.9 percent. However, the slowdown here was attributable to the more volatile subsectors and, over the same period, manufacturing output expanded 1.7 percent, up from an already impressive 1.5 percent in April-June.

With yesterday's September orders data showing plenty of demand already in the pipeline, fourth quarter industrial production should continue to rise at a healthy rate and make a more than useful contribution to real GDP growth.

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.