Thursday, July 16, 2015

Industrial Production Index and S&P 500

The industrial production index is an economic indicator that is released monthly by the Federal Reserve Board. The indicator measures the amount of output from the manufacturing, mining, electric, and gas industries. The base year for the index is 2002.

The industrial production index is a better indicator to predict the stock market than is the Gross Domestic Product (GDP). The following chart illustrates the percent changes from a year ago for S&P 500 and the industrial production index.

Both measurements move together and are currently trending downward.

The relationship of the two variables is positively correlated, and the coefficient of correlation is high. (0.786) 

The following chart displays the observed and predicted values based on the model.

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