Capacity Utilization

Importance:  ***

Definition: Capacity utilization measures the extent to which the nation's capital is being used in the production of goods. The utilization rate rises and falls with business cycles. As production increases, capacity utilization rises.

 Related Indicators:

Source: Board of Governors of the Federal Reserve System

Frequency:  Monthly

Availability: Two to three weeks following the reported month



Volatility: Low
Likely Impact of Financial Markets:

                    Interest Rates: Larger-than-expected monthly increase or increasing trend is
                    considered inflationary, causing bond prices to drop and yields and interest rates to

                    Stock Prices:

                    Exchange Rates:

Ability to Affect Markets:

Analysis of the Indicator:

Economists closely watch capacity utilization for signs of inflation pressures. There is a common
belief that when utilization rises above somewhere between 82% and 85%, prices pressures
increase, resulting in inflation.

The industrial production index, released at the same time, measures the physical volume of output of
the nation's manufacturing sector, including factories, mines, and utilities.

Goods-producing industries account for about 45% of the economy. The balance, the service sector
and construction industry, account for the remaining 55%. They are not covered by this report.

The index is expressed as a percentage of production in a base year. Currently, the base year is
1987. The data is typically expressed as an increase or decrease from the prior month.

The slower the production pace, the better the bond market likes it. Conversely, a strong production
and capacity utilization report leads to a market sell-off.

 WEB Links

A Table of the latest Industrial Production data from The Economic Statistics Briefing Room
of the White House.

The latest Industrial Productin report from the White House.