DE: Industrial Production

Fri Apr 06 01:00:00 CDT 2018

Consensus Actual Previous Revised
Month over Month 0.2% -1.6% -0.1% 0.1%
Year over Year 2.4% 5.5% 5.9%

Goods production was unexpectedly poor in February. Following an upwardly revised 0.1 percent gain in January, output fell a sizeable 1.6 percent on the month, its worst performance since August 2015. Annual growth more than halved from 5.9 percent to 2.4 percent.

However, bad weather probably had some impact as all of the major production categories saw sizeable monthly falls apart from energy where it expanded fully 4.0 percent. Capital goods (minus 3.1 percent) suffered the most but construction (minus 2.2 percent) was not far behind. The decreases in consumer goods (1.5 percent) and basics (0.7 percent) were less marked but still significant.

February's headline decline means that industrial production has now contracted in four of the last six months (and manufacturing in five of the last six). This is in sharp contrast to the bullish picture painted by the PMI surveys. Average output in January/February was 0.1 percent below its mean level in the fourth quarter and, absent any revisions, March will need a 1.3 percent bounce just to hold the quarter flat.

Depending upon how much of a negative impact the weather had in February, this is certainly not impossible. Nonetheless, today's report means that, in contrast to the fourth quarter when output rose a solid 1.0 percent, the sector is unlikely to have contributed much, if anything, to first quarter 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.