Industrial Production Indicator, Why Care About It?
Economic indicators are being closely monitored by investors. These pieces of news and current events are very crucial in the outcome of the economy and market prices of Forex market. These indicators are influential forces which change the economic situation in the trading industry. There are regular announcements that greatly affect traders’ assumptions of the economic situation .
The Fed also watches these indicators as it is a deciding factor of what to do on the interest rates. For the above mentioned reasons, these are relatively important to investors.
Industrial production figures are based on monthly raw volume of goods produced by industrial organizations such as factories, mines and electric utilities in a particular country. Also included are the industrial production figures of the industry newspaper, periodical and book publishing, traditionally labeled as manufacturing.
The industrial production data is used in conjunction with various industry capacity estimates to calculate capacity utilization ratios for each line of business annually.
The industrial production and related capacity utilization figures are considered coincident indicators, meaning that changes in the levels of these indicators usually reflect similar changes in overall economic activity. The report of industrial production will show percentage changes on month-to-month and year-over-year levels, shedding light on short-term rates of change and business cycle growth.
The Federal Reserve watches these figures closely as it understands that inflation shows itself first at the industrial level, when supplies of basic materials are scarce either for their manufacturers or for the corporate clients who buy them. Rises in the cost of commodities and materials will begin to get passed on down the line, ending up with individual consumers of expensive end products.
The industrial sector exhibits the most volatility in terms of nominal output during a business cycle peak to trough therefore; big changes in this field have been a historical forecaster of business cycle inflection points.