Business and Commerce
- Posted by Trading Campus
- Date December 4, 2017
- Comments 1 comment
It’s a survey based measure where companies’ management provides their optimistic or pessimistic view about the current business climate. The survey provides valuable evidence of perception and expectation relating to business conditions usually in manufacturing. What needs to be observed is the trend in the index.

The growth in the industrial activity of an economy is measured by the index of Industrial Production. It shows the performance of industries and sectors and gives an idea of changes that occur in different sector of the economy.
The sectors included in the IIP index are mining, manufacturing, electricity and construction. Further, a use-based classification is done in terms of basic goods, capital goods, intermediate goods, consumer goods and consumer durable and non-durable goods.

Index of industrial production as a whole is broadly indicative of the state of the economic cycle. A positive growth numbers shows strength in the economy and businesses whereas continuous de-growth of nearly four months is a warning sign.
The manufacturing sector accounts as major share in the IIP index with more than 75% of weightage. Growth trend in the manufacturing index also needs to be watch along with the IIP index. Any divergence between the two, leads to more scrutiny.

Steel is an essential commodity for a growing and industrialized economy. Steel is the basic input to many industries such as cars. A rise in steel demand and production is a leading indicator of economic growth.

Cement production is the leading indicator for construction activities such as infrastructure, commercial and housing sector in the economy. A rise in government spending leads to upbeat demand for cement as infrastructure activities kicks in. A low interest rate environment also raises demand for housing and commercial building which require cement as raw material.

Car sales are a leading indicator of economic activity. A vehicle purchased by individual is classified as consumption expenditure. The same vehicle purchased by a business is investment spending. These motor vehicle includes cars and trucks used for personal or commercial purpose.

However, they are very sensitive to interest rate environment prevailing in the economy. Low interest rate pursued consumers to take loans and purchase motor vehicle for their purpose.

Car sales needs to hand in hand with the production. If car production is on a rise but sales gap is high compared to production levels, then it’s an early warning sign that the economy is stalling.
Purchasing Manager Index
The purchasing manager index is a survey or purchasing managers and is used as a leading indicator of how the economy is performing. It’s a score of 0 to 100. If the value of the index stays above 50, it indicates that the economy is good to go. However if the number stays below 50 for more than 3 months straight then it is said that the economy is heading towards recession.
India PMI Manufacturing

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