Economists and analysts see increased industrial production as a sign of improving job growth in the industrial sectors of an economy. This in turn creates a stronger consumer base which spurs spending on services and products. Therefore, industrial production data has become an important indicator of possible inflation for forex traders.
U.S. Industrial Production Index
One of the most watched industrial production data pieces is the U.S. Industrial Production Index (IPI) This index measures the total output coming from the mining, manufacturing, gas and electric sectors in the U.S. economy. The IPI has a significant impact on valuations of the U.S. Dollar which is the most commonly traded currency in forex.
Other Industrial Production Indicators
Other countries have their own version of the U.S. IPI that attempt to measure the industrial outputs of the respective countries or regions. For example, Canada and China release their monthly Industrial Production data which measure outputs of select industrial sectors such as utilities, mining and manufacturing. However, some countries release their Industrial Production numbers less frequently, such as Australia, which reports its Industrial Production data once per quarter.
Another set of data regarding industrial output is a country’s capacity utilization data. These economic indicators measure the rate that potential industrial output levels are being used or met. Most countries will express this indicator as a percentage. Many times the Capacity Utilization Rate will be released along with Industrial Production, such as the case with the United States. Some countries will release Capacity Utilization on a monthly basis while others report the data every quarter.
Economic data related to industrial production can sometimes be volatile, especially indicators that release on a monthly basis rather than quarterly. Therefore, it is essential that forex traders properly interpret the data, putting the right amount of importance to specific reports when forecasting their effects on future currency market fluctuations. This will depend upon the structure of each country’s economy as well as other economic, political and market factors currently at play.
Le Bach Pham has been writing professionally after receiving his Bachelor’s of Art in English Literature from the University of California, San Diego in 2002. He now specializes in writing about legal, business and financial topics. Pham also earned a Paralegal Certificate from the University of San Diego and has experience working in the legal field. He also has experience in writing business plans for clients from various fields, including banking, finance, retail, education, beauty and various other sectors.