Industrial Economic Indicators and Forex Trading

Industrial Economic Indicators and Forex Trading

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There are several economic indicators pertaining to every industry that forex investors should be well aware about. They are as follows:

Industrial Production

This indicator measures the total amount of output produced by a country’s industrial companies such as factories, utilities and mines as well as the businesses of newspapers and book publishing, which are traditionally labeled as manufacturing. As a result the industrial production of a country can be used as a measurement of its economic strength and stability.

Consequently, it can also be used as a measure of the strength of that country’s currency. This leads to the usage of the industrial production indicator as a signal for trading activity on the part of forex traders.

The industrial production indicator is considered a coincident indicator, since changes in its figures usually reflect changes at the same time in the overall economy.

Capacity Utilization

This industrial indicator shows the maximum amount of output that a certain factory can produce (assuming that the business conditions are within normal levels), displayed as a percentage. This indicator is not of major importance to forex traders. Nevertheless, there are times when capacity utilization can be valuable in applying fundamental analysis.

In order to calculate the capacity utilization of a country, apply the following formula:

Capacity Utilization = Total Industrial Output / Total Production Capability

Capacity utilization of 100% designates full capacity. The utilization rate is also known as “operating rate”. If it is high, above 82-85%, this is interpreted as a possibility of nearing inflation. As a result, forex participants expect that in order to combat the potentially high inflation rates, the central bank will increase the interest rates.

If the capacity utilization rate is low, below 80%, this indicates some industrial stagnation, which may bring worries about recession and employment losses.

Capacity utilization indicator is also considered a coincident economic indicator.

Factory Orders

This industrial indicator shows the total value of both the durable and nondurable orders within a country. Even though, factory orders can be useful in several occasions for forex participants, most of the time they are of less importance for them.

  • Nondurable Goods OrdersNondurable goods may be defined as goods that have a life span of less than 3 years. They include such items as clothing, food, office supplies, light industrial products, cleaning products, products used in the maintenance of durable goods and etc.
  • Durable Goods OrdersThese orders include goods that have a life span of more than three years, such as cars, furniture, turbines, jewelry, etc.The durable goods report will often omit transportation and defense orders, in order to offset the higher volatility that is typical for large military orders.Since this indicator gives a good measure for consumer confidence, it is useful to forex participants. Thus, a high value of the durable goods orders figure signifies a bullish domestic currency.

Business Inventories

This industrial indicator includes items that are produced and kept for sale in the future. The value of this indicator is easily determined and thus it cannot represent surprise for the overall market. Nowadays, the business inventories indicator is not of a high importance to forex participants.

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