DBS cites errors in media reports regarding industrial production

If you think electronics sector was the culprit of weak IP, think again –DBS presents an evidence of turnaround.

Here’s from DBS Group Research:

It would be hard for analysts and media to get yesterday’s industrial production report more wrong than they did. The consensus on February IP was that it was “disappointing”, “lacklustre”, and did not point to better external conditions. Sectorwise, headlines reported that electronics was the culprit, “down” as it was by 6% in year-on-year terms.

Ah, year-on-year terms. Here we go again. Yes, electronics was down by 6% compared to February of last year. But it jumped by 16% compared to January, seasonally adjusted, and is now a total of 25% off its November bottom (chart below). No evidence of a turnaround?Really? In 3 short months, electronics has recouped more than half of the drop it experienced in 2H11!

Other sectors fared well in February too. Precision engineering rose by 22% (MoM, sa).Transportation engineering rose by 18%. Medical tech equipment was up by 11.5%.

The only sector that did not do well was pharma, which dropped by 10%. That’s not unusual for pharma; it is so volatile – it was up by nearly 50% in Dec and down by 25% since – we always exclude it when assessing the overall temperature of Spore IP.

When you do that in February, one finds that total IP (ex-pharma) rose by nearly 21% over Jan levels. Moreover, looking past the Chinese New Year distortions in Jan/Feb, total IP (ex-pharma) is up by nearly 22%.

Either way you cut it, IP is rebounding rapidly – and electronics are very much a driving force of that rebound – it is not at all the drag it is made out to be.

We’ve said it before and we’ll say it again. If you want to stay on top of a turn, you’ve got to monitor the levels (and growth on the margin) of what you’re interested in, not the on-year growth rates. If you watch the latter (YoY) growth rates, you are guaranteed to miss the turn every time, as yesterday’s IP report shows once again.

The bottom line is: Singapore is in the midst of a sharp turn northward, just as the rest of Asia is. But you’ll miss the whole thing if you keep asking about YoY growth rates.

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