Industrial Production. Not a tier 1 indicator

From the Edge:

KUALA LUMPUR: Malaysia’s Industrial Production Index (IPI), which tracks overall industrial activity, grew at a slower pace of 4% year-on-year (y-o-y) in April 2015, compared with a revised 7.1% y-o-y in March.

According to the Department of Statistics, the slower growth was driven by an increase in outputs in the manufacturing, mining and electricity sectors. The manufacturing, mining and electricity indices recorded production growth of 4.1%, 3.9% and 3% respectively, according to the latest statistics.

The IPI figure was below market consensus of 4.5%.

In seasonally adjusted terms, the IPI in April 2015 recorded a marginal decrease of 0.4% month-on-month, following declines of 1% in manufacturing, 1.9% in mining and 1% in electricity. Under the manufacturing sector, output growth of 4.1% y-o-y was recorded in April, driven by increases in petroleum, chemical, rubber and plastic products (3.6%), electrical and electronics products (4%) and food, beverages and tobacco (5.5%). The mining sector registered growth of 3.9%, thanks to the increase of the crude oil index of 15%.

The slower April IPI pace comes after the implementation of the 6% goods and services tax (GST) which took effect on April 1, hurting consumer spending and demand.

For the first four months of the year, overall IPI rebounded by 5.8% against 4.7% growth a year ago.

While the IPI does tell a lot of about what the industries are doing, it isn't likely to be considered a reliable share market indicator, at least not in the near term.

The problem with production is that while factories produce, it won't necessarily sell at the consumer level just yet.  The product could sit on the shelves for some time and then translate to sales.  This is especially true for electronic products, some foods (not all), and non perishable items.

The factories could also produce items just for restocking as the recent GST has brought consumption forward quite a bit as consumers purchase items pre-GST.  We don't know and won't know how it affects consumption and growth.  I consider it a non-event.  Nothing is better than jobs, consumption, and exports for determining GDP.