Industrial Production Index is another important statistical indicator that affects the rate of a national currency. True, it is unlikely to be compared with statistics on inflation, unemployment or GDP, but it is not worth writing it off. At a minimum, these are statistics that should be taken into account when analyzing the macroeconomic situation. What it is, how it is calculated and what effect it has on the stock and currency markets, read the review.
How to make money on an industrial production index
This indicator is also called an index of output. It represents the ratio of the price of goods and services created in the reporting period to a similar indicator of the base period. It includes:
- electricity and gas industry;
- processing of raw materials;
- water supply, disposal.
For the most part, this index is used in business planning production volumes. It builds targets for the development of enterprises and a forecast of future cash flows. But it can also affect the value of individual securities. The methodology for calculating the index of industrial production in different countries is different. The most common model is the Laspeyres index.
The calculation of the index takes place in several stages:
- Calculation of the increase in production for the reporting period (usually for a month or from the beginning of the year) in relation to the monthly average value of the base period. The base period is a period in which no significant wave fluctuations of values were observed, the subsequent and previous years were relatively stable. For example, if the base year is considered the period of 2011, then a comparison of January-June of the current year to January-June 2011 is taken.
- Calculation of changes in production volumes in the previous month with the corresponding month of the base year. For example, May of the current year by May 2011.
- Calculation of changes in production volumes for the current period relative to the previous one. For example, June of the current year by May of the current year.
For the three indicators, the aggregate value is displayed. The index is published for the month, quarter and year. It is also calculated in the context of each industry, which at the time of crisis or peak growth allows you to track the most problematic and promising sectors. Estimate industrial production index along with inflation and unemployment.
The growth index indicates the growth of balanced production (that is, production, taking into account the level of consumption). And this is a reason for hope that the company’s revenue will grow. In many ways, the growth or decline of stock prices depends on whether the index data coincide with the forecast (consensus).
Conclusion. The industrial production index has rather auxiliary value. His analysis gives an approximate understanding of how the economy is developing. But the output of statistics, for example, on the US market does not carry such key values as the discount rate or Non-farm. However, it will come in handy for fundamental analysis.