Dr. Ed’s
Economic
Indicators

CAPACITY UTILIZATION RATE

Release Date: Monthly
Release Coverage: Prior Month's Data
Released By: Federal Reserve Board
Official Release (weekly): http://www.federalreserve.gov/releases/g17/Current/default.htm

The capacity utilization rate is the ratio of actual output as a percentage of potential output given the same circumstances and costs of production. The index is designed to measure changes in the level of output in the industrial sector of the economy; it is grouped by both products (consumer goods, business equipment, intermediate goods, and materials) and industry (manufacturing, mining, and utilities).

WHAT DR. ED SAYS:

According to the Federal Reserve Bank of New York, "changes in this index provide useful information on the current growth of GDP. The level of capacity utilization in the industrial sector provides information on the overall level of resource utilization in the economy, which may in turn provide information on the likely future course of inflation."

Generally speaking, a high capacity utilization rate coincides with a strong economy. Manufacturers are able to minimize costs through economies of scale and increase or maintain prices with more ease. A low capacity utilization rate can be associated with price cutting in an attempt to increase sales and maximize utilization of property plant and equipment.

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