"We have had a whole string of strong ISM numbers. This is a gauge of sentiment and sentiment is improving. The emerging markets are doing better. We are looking for growth to pick up once again in the new year and we have few headwinds to deal with, especially less fiscal drag. "
- Scott Brown, chief economist with Raymond James
Industrial output is a leading indicator of economic health, as producers usually react quickly to any changes in the business cycle. Index is calculated each month and takes into account the volume of actual output from mining and quarrying, manufacturing and utilities. Therefore, industrial output gives a good insight on what is happening with the economy.
A final report from the Ministry of Economy, Trade and Industry surprised markets to the downside on Monday, by showing Japanese industrial production turned lower 0.1% in November, instead of a 0.1% gain estimated earlier. Moreover, this is a steep decline from October's 1% increase. In addition to that, capacity utilization sank 0.5% month-on-month over the same period, and when being compared with the previous year, utilization plunged 2.8%. Market's reaction was immediate, with USD/JPY rising to 104.24.
Despite disappointing figures, global manufacturing ended last year on a strong note, with major exporters like the United States, Japan and Germany all recording stronger demand for their production. Several years of strict austerity measures, along with rocketing stock markets, appear to be pushing investors' confidence higher, resulting in a stronger manufacturing and industrial outputs. This year, the tendency is projected to persist.
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