What is an industrial production index?

16 The day of each month is issued by the Governor's Governor Council of the Governor of Two Economic Indeeds, Index of Industrial Production (IPI) and capacity use. Index industrial production indicates monthly production of raw goods companies such as public services services, mines, factories, newspaper and magazines, publishers and book publishers. Index of industrial production is calculated using Fischer formula and compared to the reference year, currently 2002 with reference level 100. Knowledge of IPI trends allows investors to predict the future economy and gross domestic product, measure inflation and measure growth in an individual industrial sector.

Index of industrial production can be used to calculate capacity use ratios. The use of capacity concerns the range of current production in a particular industrial sector approaches its productive potential. This indicator means the effectNosta production in the economy. Index of industrial production and capacity use moves procecically with the health of the economy, rising with increasing economy and falling with a sick economy. In addition, both indicators reflect the random economy and reveal the current short -term state of economic activity.

There are strengths and weaknesses for the use of industrial production index as an economic indicator. It is based on timely information, with the data used in the calculation up to several weeks before publishing. It also allows analysis of various industries. An important disadvantage of IPI as an economic indicator is that it does not include service and building sectors that make up more than 50 percent of the economy. In addition, capacity use numbers are derived from different sources, some of which may not be verifiable.

Index of industrial production is carefully monitored by a federal reserve reserve reservem. This indicator is a harbinger of the upcoming inflation when it begins to fall. Increasing IPI associated with increasing capacity use usually occurs when raw materials become rare, leading to an increase in their prices. As the production costs rise, the prices of the finished goods will increase subsequently. When capacity use rises above 82 percent, a sign of strong demand and insufficient supply, inflation occurs.

These indicators also respond markets with stocks and bonds. The modest industrial production index combined with the level of use of capacity below 80 indicates economic slowdown, which encourages concerns about growing unemployment and recession. IPI, which is higher than expected during economic expansion, creates fearsinflation, while the index, which is higher than expected during economic slowing, can start a assembly. Lower than expected, they can create a short -term increase in prices if investors were careful before the economy overheated with the risk of hyperinflation.