Hard data on the cyclical part of the economy — second-tier for the dollar, first-tier for commodity currencies.
intermediate · 4 min read · 12 XP
Industrial production and durable goods orders are the hard-data counterparts to the manufacturing survey — actual output and actual orders rather than opinions about them. They move the dollar modestly and the commodity currencies considerably more, and one line inside durable goods is a genuine leading indicator worth tracking.
Industrial production measures the real output of manufacturing, mining and utilities. In the US it is published monthly by the Federal Reserve, mid-month, alongside capacity utilisation — the share of productive capacity actually in use.
Two things make it worth reading:
It is volume, not value. Unlike nominal retail sales, industrial production is a real measure. There is no inflation illusion to unpick.
Capacity utilisation is an inflation input. When utilisation runs high, firms have limited room to expand output without investment, which creates bottlenecks and pricing power. Central banks watch it as a supply-side pressure gauge.
The weaknesses are real too. Utilities output swings with weather — an unusually cold month lifts the index for reasons with no economic content. And manufacturing is a small share of a modern economy, so the whole series describes a shrinking corner of it.
Durable goods orders counts new orders for goods intended to last three or more years — vehicles, aircraft, machinery, appliances. Published monthly by the Census Bureau, at 8:30am New York.
This series is notoriously volatile, and for one specific reason: aircraft. A single month's commercial aircraft orders can swing the headline by double-digit percentages. That is a corporate order book, not the economy.
The line that matters: core capital goods orders
Strip out defence and aircraft and you get non-defence capital goods orders excluding aircraft — usually called core capital goods, or "core capex".
This is a genuine leading indicator of business investment. It tells you what companies are committing to spend on productive capacity, which is a forward-looking decision driven by their expectations for demand and by the cost of capital.
It is also rate-sensitive: when policy tightens, capex orders are among the first things to soften, which makes core capital goods one of the better real-time reads on whether monetary policy is actually transmitting to the real economy.
The dollar reacts modestly to both. The currencies that care are the ones whose exports are the inputs:
Chinese industrial production is arguably a bigger driver of AUD than Australian domestic data is, because China is the destination for the exports.
Aircraft, again
If durable goods headline moves double digits, check the aircraft line before reacting. It is almost always aircraft, it is almost always a single order book, and the market fades it within minutes. Look at core capital goods instead.
A good report. The headline fall is almost certainly aircraft or defence — lumpy, order-book-driven categories that say nothing about the economy. Core capital goods rising means businesses are still committing to investment spending, which is forward-looking and rate-sensitive. Markets will fade the headline drop. This pattern recurs frequently enough that the headline is barely worth reading.
| Release | Impact on USD | Impact on AUD/CAD |
|---|---|---|
| Industrial production | Low | Moderate, via global demand read-through |
| Capacity utilisation | Low, but an inflation input | Low |
| Durable goods headline | Low — usually faded | Low |
| Core capital goods orders | Moderate — a real capex signal | Moderate |
| Chinese industrial production | Low directly | High |
What to remember
Industrial production is a real volume measure of output, published with capacity utilisation as a supply-side inflation gauge. Durable goods orders is dominated by lumpy aircraft orders and is usually faded, but the core capital goods line inside it — excluding defence and aircraft — is a genuine leading indicator of business investment and of whether tighter policy is reaching the real economy. Both matter more to commodity currencies than to the dollar.