1. Economic Indicators: Introduction
  2. Economic Indicators: Beige Book
  3. Economic Indicators: Business Outlook Survey
  4. Economic Indicators: Consumer Confidence Index (CCI)
  5. Economic Indicators: Consumer Credit Report
  6. Economic Indicators: Consumer Price Index (CPI)
  7. Economic Indicators: Durable Goods Report
  8. Economic Indicators: Employee Cost Index (ECI)
  9. Economic Indicators: Employee Situation Report
  10. Economic Indicators: Existing Home Sales
  11. Economic Indicators: Factory Orders Report
  12. Economic Indicators: Gross Domestic Product (GDP)
  13. Economic Indicators: Housing Starts
  14. Economic Indicators: Industrial Production
  15. Economic Indicators: Jobless Claims Report
  16. Economic Indicators: Money Supply
  17. Economic Indicators: Mutual Fund Flows
  18. Economic Indicators: Non-Manufacturing Report
  19. Economic Indicators: Personal Income and Outlays
  20. Economic Indicators: Producer Price Index (PPI)
  21. Economic Indicators: Productivity Report
  22. Economic Indicators: Purchasing Managers Index (PMI)
  23. Economic Indicators: Retail Sales Report
  24. Economic Indicators: Trade Balance Report
  25. Economic Indicators: Wholesale Trade Report

Each month the Federal Reserve releases its report on industrial production as well as its report on capacity utilization. The report covers manufacturing, mining and gas and electric utilities. The detail from the industrial section can help illustrate changes in the structure of our economy.

Industrial production figures are based on the monthly raw volume of goods produced by industrial firms such as factories, mines and electric utilities in the United States. Also included in the industrial production figures are the businesses of 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, with a base year used as a benchmark level of 100% (currently 2002). Aggregate utilization ratios are also provided for areas such as total manufacturing and total high-tech production.

The Federal Reserve watches this figure closely because it understands that inflation shows itself first at the industrial level, when supplies of basic materials get tight —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 higher-cost finished products.

Also, the industrial sector exhibits the most volatility in terms of nominal output during a business cycle peak to trough. As a result, big changes here have been a historical forecaster of business cycle inflection points.

 

Why Industrial Production is important

The release can frequently move the markets as industrial production is considered to be an indicator for future inflation. The level of industrial production as well as capacity utilization can be a predictor of future activity.

If these sectors are operating at near full capacity then there is a chance that prices will increase, leading to potential inflationary pressures.

 

Strengths of Industrial Production:

  • Sector breakdown allows for inspection of the relative performance of many lines of business, such as electronics, chemicals and basic metals.
  • Press releases will include valuable analysis, which removes overly volatile components to provide a more relevant trendline and puts current numbers into perspective.
  • A timely indicator that is released only weeks after data is measured

 

Weaknesses of Industrial Production:

  • It only deals with physical goods-producing industries, which make up less than half of economic output. Services, as well as construction production, are not included.
  • The capacity numbers are drawn from many different sources, and sometimes pure estimates are used when no information is available
  • Historical comparisons are made difficult by heavy transition of component industries, as well as the changing demographics of U.S. output as a whole (manufacturing output is in a constant decline as a % of GNP)

 

 

Economic Indicators: Jobless Claims Report
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