Industrial production rose 2.8% mom/sa in December, above expectations.
• Industrial production increased 2.8% mom/sa in December, topping the median of market expectations (2.0%) and our estimate (2.4%). In 2017, the indicator expanded 2.5%, its fastest growth pace since 2010.
• The higher-than-expected monthly result should be read carefully. The recent recession changed the composition of the manufacturing sector, reducing the importance of cyclical segments (which have a seasonal tendency to decline more in December). Hence, the statistical filter that corrects the series for seasonal factors probably adjusted the production level (upward) by more than would be consistent with the manufacturing sector’s new composition.
• Indicators related to gross fixed capital formation remain strong. Although production of capital goods was stable at the margin (after seven consecutive increases), production of construction material climbed 5.0% during the month and 7.2% yoy.
• Our preliminary estimate for January is for a drop of 2.1% mom/sa that would still be consistent with an upward trend.
Industrial production beats expectations with a broad-based hike
Industrial production advanced 2.8% mom/sa in December, above the median of market estimates (2.0%) and our call (2.4%). Compared with December 2016, industrial output climbed 4.3%.
The higher-than-expected monthly result should be read carefully. The recent recession changed the composition of the manufacturing sector, reducing the importance of cyclical segments (which have a seasonal tendency to decline more in December). Hence, the statistical filter that corrects the series for seasonal factors probably adjusted the production level (upward) by more than would be consistent with the manufacturing sector’s new composition.
Notwithstanding this caveat for December’s reading, industrial production expanded 2.5% in 2017, marking the best annual result since 2010, when it soared 10.2%. After that, the indicator printed at 0.4% in 2011, -2.3% in 2012, 2.1% in 2013, -3.0% in 2014, -8.2% in 2015, and -6.4% in 2016.
The breakdown by economic category showed gains in durable goods (5.9%), intermediate goods (1.7%), and semi-durable and non-durable consumer goods (3.0%). Production of capital goods was stable at the margin, following seven consecutive months of increases.
In terms of economic activity, extraction and mining fell 1.5%, while manufacturing output advanced 3.1%. A more detailed breakdown (encompassing 24 activities) shows consistency with the headline result, as 83% of activities posted monthly gains.
Investment-related segments continue to grow in a manner consistent with a gradual recovery of economic activity. Construction material production soared 5.0% in December and 7.2% yoy, although the production of capital goods was unchanged after seven consecutive months of increases.
Coincident indicators signal a decline in January
Available coincident indicators (industrial confidence, capacity utilization, weekly foreign trade figures, power consumption, auto sector data, among others) point to a 2.1% drop in industrial production in January (5.9% increase yoy). Importantly, the upward trend (assessed by the three-month moving average) would be sustained if such drop is confirmed.
Heat map: Industrial production continues to accelerate
Our heat map below also shows a widespread pickup in industrial production in December. Considering the main categories, only mining and non-durable consumer goods were in neutral territory. Breaking down by segments, 15 gained momentum, six were in neutral territory and two cooled down.
For the full methodology, please refer to: New Industrial Production Heat Map.
Artur Manoel Passos
Alexandre Gomes da Cunha