Industrial production tells us how much physical production is occurring in the European Union by measuring monthly changes in the price adjusted and seasonally adjusted output of industry. In addition, it breaks down production by market groups such as durable consumer goods, non- durable consumer goods, capital goods, intermediate goods and energy. Industrial production is calculated by Eurostat, the statistical office of the European Union (EU). Each country’s National Statistical Office submits their industrial production estimates after conducting surveys with private sector industrial firms. Eurostat collects the information and then performs aggregations and weightings. The data release aggregates industrial production data for the Euro Area 19 nations that use the Euro currency and separately aggregates data for the
European Union 27 nations to include the countries that don’t use the Euro currency. The data release is published monthly near the 14th day of the month at 9:00 am London time. For more detailed and comprehensive industrial production data, the annual industrial production report provides additional highlights on sub-sectors, specific products and sales and is released in the July following the referenced year. Eurostat’s mission is to provide high quality European statistics and data to support public and private sector decision making.
The report tracks industrial production as a measure of productivity and reveals vital information about consumer demand and producer output. Increasing production in the industrial sector confirms that the economy is growing as more goods are produced, likely due to an increase in consumer demand. If industrial production declines, that could be a sign that the economy is slowing down or heading into recession, since the industrial sector is most likely producing less goods as a result of declining consumer demand.
Considering the capital-intensive and interest rate sensitive nature of the industrial sector, it can provide valuable insights on the future of economic growth. There may be negative consequences worldwide if industrial production declines in the EU. Higher interest rates, lower consumer demand, and/or supply chain disruptions may negatively impact industrial production, possibly resulting in layoffs at factories. This may cause those workers impacted by income decreases to purchase fewer goods and services from local and global suppliers. It is vital to track industrial conditions because contagion can be felt domestically and internationally. Due at least in part to tighter policies and/or reduced consumer demand, industrial production declined during the great financial crisis in 2008, the 2011 Euro recession, and the COVID-19 recession.
To forecast industrial production, we’d look at leading economic indicators such as manufacturing PMI to measure the behavior, sentiment and outlook of influential manufacturing executives, retail trade as a measure of consumer demand, daily commodity price action to get a gauge of how manufacturing inputs are doing, and economic sentiment to monitor business and consumer confidence, expectations, and uncertainty. In addition, we’d listen to the earnings calls and monitor the stock performance of some of the largest manufacturing companies for signs of an economic slowdown or expansion. Unilever, ArcelorMittal, Volkswagen, Mercedes Benz, BMW, Siemens, Airbus, and others are some to pay attention to. Also worth watching are the meetings and commentary of the European Central Bank, since higher interest rates and tighter credit conditions are detrimental to business investment and to capital intensive industries like manufacturing and real estate.
Industrial production is not normally a market moving data release although big surprises in either direction may influence the market’s direction.
The monthly industrial production report gives an indication of an economy’s growth or shrinkage through an industrial lens.
Disclosure: Interactive Brokers
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