Industrial production slumped by more than expected in September, a sign that the recent economic slowdown intensified in the final month of the third quarter.

Output fell by 0.5 percent, far worse than the predicted 0.1 percent decline. However, production sagged by just 0.1 percent in August, an upward revision from the initially reported 0.3 percent drop. Output dropped by 0.5 percent over September of 2023 and declined by an annual rate of 0.3 percent in August, slightly brighter than the 0.5 percent retreat reported last month.

Production was weak across the board, with manufacturing declining by 0.4 percent in September, pulled lower by a 4.3 percent slump in transport equipment. Textile output eased by 2.7 percent, but a 3.8 percent gain in pharmaceutical products kept the manufacturing decline in check.

Elsewhere, mining and quarrying eased by 0.8 percent, but construction managed a 1.8 percent rise.

The data come days after the news of a marked economic slowdown in France, with gross domestic product expanding by just 0.1 percent in the third quarter, down from a 0.6 percent gain in the previous three months.

That GDP data, released on Tuesday, showed total production of goods and services rising by 0.2 percent in the third quarter, down from a 0.8 percent gain in the previous three months.

Economic softness in both France and Germany add strength to the market view that the European Central Bank is done hiking interest rates, particularly after a sharp reduction in headline inflation last month. If the weakness stretches into the fourth quarter and beyond, the market narrative may shift to discussions of when the Bank might begin cutting rates, despite ECB President Christine Lagarde's insistence last week that the governing council has yet to broach that topic.

The latest data leave the French RPI flat and the RPI-P at 8, meaning that overall economic activity is performing in line with market expectations.

Production is seen falling again in September, an expected 0.1 percent monthly dip following August's 0.3 percent decline.

Industrial production measures the physical output of the nation's factories, mines and utilities. Manufacturing is seen as the best guide to underlying developments as some sectors can be very volatile and cause misleadingly large short-term swings in total industrial production.

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. Like the PPI and the orders data, construction is excluded from the data. 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.