DE: Industrial Production

Thu Dec 07 01:00:00 CST 2017

Consensus Actual Previous Revised
Month over Month 0.5% -1.4% -1.6% -0.9%
Year over Year 2.7% 3.5% 4.2%

Goods production was surprisingly weak in October. A 1.4 percent monthly decline was the sharpest contraction since December 2016 and although September's drop was reduced to 0.9 percent, output has now fallen in four of the last five months. Annual growth was 2.7 percent, down from 4.2 percent last time and its slowest pace since June.

In fact, the headline data would have looked even worse but for energy where production expanded fully 5.1 percent versus September. Manufacturing output shrank 2.0 percent led by hefty decreases in capital goods (2.7 percent) and consumer goods (2.6 percent). Intermediates (minus 1.0 percent) fared little better and rounding off a very poor month, there was also a sizeable decline in construction (1.3 percent).

October's miserable showing puts industrial production some 1.2 percent below its average level in the third quarter when it rose 1.1 percent versus April-June. On the same basis, manufacturing was down 1.8 percent following a 1.8 percent quarterly gain. Such figures are in complete contract with the decidedly upbeat pictures painted by recent PMI and Ifo surveys and, indeed, by the ongoing solid uptrend in manufacturing orders. As such, there should be a major bounce in output in November/December and/or some sizeable positive revisions in the pipeline. If not, fourth quarter GDP growth is going to surprise significantly on the downside.

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.