June industrial growth slows to 3.7%
Context
In June, industrial production growth dropped to a three-month low of 3.7% from May’s revised 5.3%, with manufacturing growth slowing to 3.1% from 5.8% in May and consumer durables output slipping back into contraction.
What is the Index of Industrial Production?
- The Index of Industrial Production (IIP) is a significant economic indicator that tracks short-term shifts in the amount of output of a selected basket of industrial goods over a certain period. It offers perceptions of the general development and effectiveness of the industrial sector in a nation.
- A variety of businesses, including manufacturing, mining, and electricity production, are often covered by the IIP. Whether industrial production is rising or falling over time can be determined by the increase or reduction in the index. The index value for the base period, to which the production of the present period is compared, is set to 100, and the index for succeeding periods shows changes with this base value.
What is the significance of the Index of Industrial Production?
- Economic Growth Indicator: The IIP offers insightful information about the industrial sector’s growth trajectory. Changes in the IIP can be used to predict the direction of overall economic growth because industrial production contributes significantly to a nation’s Gross Domestic Product (GDP). When IIP increases, the economy is often growing; yet, when IIP declines, the economy may be slowing down.
- Business Cycle Analysis: The IIP assists economists, decision-makers, and organizations in analyzing the various business cycle phases, such as growth, peak, recession, and trough. Stakeholders can predict future changes in economic conditions and modify their strategy accordingly by keeping an eye on variations in industrial production.
- Policy Formulation: IIP statistics are used by governments and central banks to create and modify economic policies. For instance, if the IIP reveals a sizable fall, authorities may put forth initiatives to boost the industrial sector, such as alterations to interest rates, fiscal stimulus, or tailored incentives to particular companies.
- Investment and Financial Decisions: To make wise investments in industrial sectors and linked enterprises, investors and financial institutions use IIP data. Corporate earnings, stock prices, and investment plans can all be impacted by changes in industrial production.
- Price Trends and Inflation: Industrial output has an impact on the availability of goods, which can have an impact on inflation rates. Higher demand and inflationary pressures may result from an abrupt increase in industrial production, while the opposite may be true if it declines.
- Input for national Accoun ts: Industrial production information is crucial for compiling the national accounts, which include GDP and other macroeconomic indicators. A thorough assessment of a nation’s economic performance requires accurate data on industrial production.
What is the role of NSO?
The task of gathering, compiling, interpreting, and disseminating official statistical data and information in a nation falls to the National Statistical Office (NSO). To assist evidence-based policymaking, planning, research, and decision-making across many economic sectors, the NSO’s primary responsibility is to offer accurate and trustworthy statistical information.
- Data Collection: The NSO is in charge of gathering data from a variety of sources, including surveys, censuses, administrative records, and other pertinent sources. With the help of this data-gathering procedure, precise and thorough data are made available for reporting and analysis.
- Data compilation and analysis: The NSO compiles and analyzes the data after collection to produce insightful statistics reports and indicators. This entails calculating several indices, including the Index of Industrial Production (IIP), the Wholesale Price Index (WPI), and the Consumer Price Index (CPI), among others.
- Economic and Social Data: The National Statistical Office (NSO) compiles and disseminates a broad range of economic, social, and demographic data that shed light on the nation’s economic performance, social conditions, and demographic makeup.
- National Accounts: Gross Domestic Product (GDP), Gross National Income (GNI), and other important macroeconomic indicators are included in the national accounts, which are estimated and published by the NSO. These metrics provide a thorough picture of the state of the economy as a whole.
- Surveys and Studies: The NSO carries out a range of surveys and studies to collect specialized data on particular subjects, industries, or problems. These studies offer thorough data that aids decision-making by policymakers. Surveys of the workforce, household income, and spending patterns, and industrial surveys are a few examples.
What does the recent IIP data show?
- Growth in Industrial Production: In June, industrial production growth dropped to a three-month low of 3.7%. This was lower than the 5.3% revised growth rate for May. The growth rate for the manufacturing industry fell from 5.8% in May to 3.1% in June.
- Consumer durables’ performance as a sector: In June, the production of consumer durables experienced a major fall of 6.9%, returning to recession. This contrasted with May, when there was a tepid recovery of 1.23% following a fall of six months. Production of durable goods remained 2.8% below levels in the first quarter of the fiscal year 2023–24.
- power Production: In June, after two months of decline, power production rose by 4.2%. This came after a growth of 0.9% in May.
- Production in the mining industry: In June, the mining industry’s growth accelerated to 7.6% from 6.4% in May.
- Industrial Production: The overall industrial output decreased by 1.2% sequentially despite gains in several areas.
- Consumer Demand: Consumer demand remained muted, with non-durable goods’ growth dropping to 1.2% in June after increasing by 8.4% in May.
- Capital Goods Output: In June, capital goods output, a sign of future investment, increased by 2.2%. Even though this growth rate was the weakest in eight months, the level of production in absolute terms climbed by 4% from May to the highest level since April.
- Sectoral Contraction:14 of the 23 manufacturing sectors that the National Statistical Office (NSO) monitors had a decrease in June. In comparison to May, when 12 sectors recorded a decline, this was an improvement.
- Impact of Inflation on the Economy: Real buying power was mentioned as being impacted by inflation. Food inflation had an effect even though core inflation remained constant. It was determined that the government’s push for infrastructure development was a factor in the expansion of some industries.
Overall, the results point to uneven performance across several economic sectors. Despite significant setbacks in the manufacturing and consumer durables sectors, industries like mining and power production saw growth. Significant obstacles included weak consumer demand and the effect of inflation on purchasing power.
