EMU: Industrial Production

Thu Apr 12 04:00:00 CDT 2018

Consensus Actual Previous Revised
Month over Month 0.2% -0.8% -1.0% -0.6%
Year over Year 2.9% 2.7% 3.7%

Industrial production (excluding construction) was unexpectedly weak in February. Although January's monthly decline was pared to 0.6 percent, this was followed by a sizeable 0.8 percent drop that saw annual workday adjusted growth slow from 3.7 percent to 2.9 percent, a 4-month low. Production has now fallen for three months in a row.

However, in line with many of the national reports, the signs are that the headline Eurozone data were biased down to some degree by bad weather, in particular heavy snow. Hence, while there were monthly decreases in output in capital goods (3.6 percent), intermediates (0.8 percent), consumer durables (2.1 percent) and non-durables (0.5 percent), energy posted a 6.8 percent surge.

Regionally amongst the largest four member states, Germany (minus 1.5 percent) recorded its fifth decline in six months and Italy (minus 0.5 percent), its second consecutive contraction. Stronger performances by France (1.3 percent) and Spain (1.4 percent) only reversed a fraction of their respective falls in January and papered over a much less buoyant manufacturing sector.

The February report means that average Eurozone industrial production in the first two months of the year was 0.5 percent below its fourth quarter mean. Without any revisions, this leaves March needing a monthly rise of fully 2.1 percent just to keep the first quarter flat. Even assuming a significant bad weather hit in February, this must be unlikely. Having been worth almost half of the 0.6 percent quarterly increase in Eurozone GDP in the fourth quarter of 2017, the slowdown here is set to weigh heavily on first quarter economic growth. The prospect of any early shift in ECB policy looks all the less likely.

Industrial production measures the physical output of factories, mines and utilities. The measure provided by Eurostat excludes the volatile construction subsector for which data are released a few days later.

Industrial production measures changes in the volume of output for the EMU's member states. The industrial production index provides a measure of the volume trend in value added at factor cost over a given reference period, excluding VAT and other similar deductible taxes. The preferred number is industrial production excluding construction. As with other EMU statistics, the data are provided by the national statistics offices to Eurostat (the European Union statistical agency) where it is combined to produce an overall output measure.

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.