Industrial production was much weaker than expected in December. A 3.1 percent monthly drop was nowhere near the market consensus, the steepest since last March and, following a slightly larger revised 0.4 percent gain in November, cut annual growth from minus 0.6 percent to minus 4.2 percent. Indeed, production was some 8.6 percent short of its pre-pandemic level in February 2020.

Manufacturing fared slightly better but still fell a monthly 2.1 percent. This was on the back of a 5.8 percent slump in intermediates within which chemicals were especially soft. Capital goods were flat while consumer goods actually rose 0.3 percent. Elsewhere, energy was down 2.3 percent and construction a probably weather-impacted 8.0 percent.

December's setback means total industrial production has fallen in four of the last six months and is now at its lowest level since August 2020. It also means that fourth quarter production declined 0.7 percent versus the previous period, implying another hit to real GDP growth. Moreover, with orders still trending lower, the current quarter may not be much better. That said, both the German ECDI and ECDI-P now stand at 4, implying that economic activity in general is largely matching market expectations.

Industrial production in December is expected to fall 0.6 percent on the month following a modest, but expectations-beating, 0.2 percent rise in November. The year-over-year comparison is seen falling 7 tenths deeper into contraction at minus 1.2 percent.

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.