Change in seasonality is behind seemingly-weak result at the margin

• Industrial production fell 2.4% mom/sa in January, disappointing the median of market expectations (-2.1%) and slightly above our call (-2.6%).

• This seemingly-weak result must be read with caution. The recent recession changed the composition of the industrial segment in Brazil, reducing the importance of cyclical sectors (whose seasonality pushes them to contract more sharply in December and rebound in January). Hence, the statistical filter that corrects the series in terms of seasonal factors probably adjusted production to a level that is lower than what would be consistent under this new composition.    

• On a year-over-year basis (not affected by the distortion), industrial production advanced 5.7%, accelerating from a 4.5% pace in the previous month.

• Additionally, our preliminary estimate for February is an increase of 0.7% mom/sa, reinforcing our view of an upward trend in industrial production.

Change in seasonality is behind seemingly-weak result at the margin 

Industrial production dropped 2.4% mom/sa  in January, disappointing the median of market expectations (-2.1%), but somewhat above our call (-2.6%). Compared to January 2017, industrial output climbed 5.7%, picking up from 4.5% in the previous month.

The seemingly-weak monthly result must be read with caution. The recent recession changed the composition of the industrial segment in Brazil, reducing the importance of cyclical sectors (whose seasonality pushes them to contract more sharply in December and rebound in January). Hence, the statistical filter that corrects the series in terms of seasonal factors probably adjusted production to a level that is lower than what would be consistent under this new composition.

The breakdown analysis is clouded by the abovementioned distortion, so that assessing the evolution of quarterly moving averages is more suitable. This metric shows gains in all four economic categories: durable consumer goods (0.7%), intermediate goods (0.4%), semi-durable and non-durable consumer goods (0.4%), and capital goods (0.2%).

In terms of economic activity, extraction and mining (not affected by the distortion in seasonality) expanded 2.2%, offsetting a 1.6% slide in the previous month. Manufacturing output (affected by the distortion) receded 2.8% during the month, but its quarterly moving average continues to advance. A more detailed breakdown shows declines in 19 out of 24 activities. However, 15 of them were up according to their quarterly moving averages.

Coincident indicators signal an increase in February

Available coincident indicators (industrial confidence, capacity utilization, weekly foreign trade figures, power consumption, auto sector data, among others) point to a 0.7% mom/sa increase in industrial production in February (4.9% yoy).

Heat map: Seemingly-weak result in January leads to cooling at the margin

Due to its use of the seasonally-adjusted result for January, our heat map was affected by the distortion in seasonality already discussed. Most categories cooled down during the month.

For the full methodology, please refer to: New Industrial Production Heat Map.
Artur Manoel Passos