Industrial production again fell well short of expectations in December. A 1.6 percent monthly drop was four times the market consensus and the sixth decline in the last seven months. It was also the steepest since last March. The November decrease was trimmed to 0.2 percent and annual growth improved from minus 4.4 percent to minus 3.1 percent but output now stands at its lowest level since May 2020, in the midst of Covid.

Manufacturing fared little better, posting a 1.5 percent monthly slide as intermediates dropped fully 5.2 percent and consumer goods 0.9 percent. However, a partial offset was provided by capital goods which increased 1.3 percent. Elsewhere, energy jumped fully 4.1 percent but the ailing construction sector contracted a further 3.4 percent.

December's setback leaves fourth quarter industrial production down 1.8 percent versus the previous period and means that the sector again subtracted from GDP growth. Looking ahead, manufacturing orders surged at year-end but the underlying trend remains weak and survey data point to a poor start to 2024. A recovery in goods output is probably still some way off. Today's update puts the German RPI at exactly zero and the RPI-P at 16.

Industrial production in December is expected fall 0.4 percent on the month after declining a steeper-than-expected 0.7 percent in November, its sixth straight drop. Annual growth is seen at minus 3.9 percent following minus 4.9 percent contraction in November.

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.