Industrial Production indicator c onsists 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 the foreign 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.
2001 by Royal Forex. All right reserved. www.royalforex.com
17
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.
Factory orders. Refer to the total of durable and nondurable goods orders. Nondurable goods 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 nondurables, 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.