Industrial Production indicator consists of the total output
of a nation's plants, utilities, and mines. From a fundamental point of view,
it is an important economic indicator that reflects the strength of the economy,
and by extrapolation, the strength of a specific currency. Therefore, foreign
exchange traders use this economic indicator as a potential trading signal.
Capacity utilization indicator consists of total industrial
output divided by total production capability. The term refers to the maximum
level of output a plant can generate under normal business conditions. In
general, capacity utilization is not a major economic indicator for theforeign
exchange market. However, there are instances when its economic implications
are useful for fundamental analysis. A "normal" figure for a steady
economy is 81.5 percent. If the figure reads 85 percent or more, the data
suggests that the industrial production is overheating, that the economy is
close to full capacity. High capacity utilization rates precede inflation, and
expectation in the foreign exchange market is that the central bank will raise
interest rates in order to avoid or fight inflation. consist of food, clothing,
light industrial products, and products designed for the maintenance of durable
goods. Durable goods orders are discussed separately. The factory orders
indicator has limited significance for foreign exchange traders.
Durable goods orders consist of products with a life span of
more than three years. Examples of durable goods are autos, appliances,
furniture, jewelry, and toys. They are divided into four major categories:
primary metals, machinery, electrical machinery, and transportation. In order
to eliminate the volatility pertinent to large military orders, the indicator
includes a breakdown of the orders between defense and non-defense. This data
is fairly important to foreign exchange markets because it gives a good
indication of consumer confidence. Because durable goods cost more than
nondurable, a high number in this indicator shows consumers' propensity to
spend. Therefore, a good figure is generally bullish for the domestic currency.
Business inventories consist of items produced and held for
future sale. The compilation of this information is facile and holds little
surprise for the market. Moreover, financial management and computerization
help control business inventories in unprecedented ways. Therefore, the
importance of this indicator for foreign exchange traders is limited.
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