GB: Industrial Production

Fri Dec 08 03:30:00 CST 2017

Consensus Actual Previous
IP-M/M 0.0% 0.0% 0.7%
IP-Y/Y 3.5% 3.6% 2.5%
Mfg Output-M/M -0.1% 0.1% 0.7%
Mfg Output-Y/Y 3.7% 3.9% 2.7%

Industrial production performed much as expected in October. Following an unrevised 0.7 percent monthly spurt in September, output only stagnated. Annual growth jumped from 2.5 percent to 3.6 percent but this simply reflected weakness in the year ago period.

The key manufacturing sector told a similar story with a 0.1 percent monthly increase in output that lifted yearly growth from 2.7 percent to 3.9 percent. The minimal monthly advance was largely attributable to gains in food, drink and tobacco (1.1 percent), pharmaceuticals (2.7 percent) and transport equipment (2.8 percent) that were all but offset by falls in computer, electronic and optical products (3.4 percent), textiles and leather (minus 1.9 percent) and the other manufacturing and repair (minus 3.5 percent).

Elsewhere, total industrial production was boosted by mining and quarrying (2.7 percent) and water supply (1.4 percent) but depressed by electricity and gas (minus 3.3 percent).

Despite October's less than sparkling data, over the latest three months both industrial production and manufacturing output expanded a respectable 1.2 percent, the latter on the back of broad-based gains amongst its thirteen subsectors (nine saw positive growth). This suggests that underlying trends are quite favourable and relatively bullish PMI and CBI surveys for November point to the current good run being extended through year-end.

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.