Market importance: High importance.
Meaning: Reflects the U.S. industrial output and idle capacity, which are important for measuring the output gap and inflation level.
Release time: The 15th of each month, reporting the previous month’s data, 9:15 a.m. Eastern Time.
Coverage period: The just-ended month.
Revision situation: Generally not large.
The Federal Reserve’s two most watched reports are the Industrial Production and Capacity Utilization reports. They are both released in the middle of each month.
The Industrial Production report covers all physical products produced within the U.S. Economists and financial market analysts pay close attention to industrial production because this data responds quickly to the economic cycle.
Capacity Utilization, also called the equipment utilization rate, is the ratio of total industrial output to production equipment. Simply put, it is how much actual production capacity is being used and produced.
The Federal Reserve covers eight sectors when calculating capacity utilization: manufacturing, mining, utilities, durable goods, non-durable goods, basic metal industries, automotive, and gasoline. These represent the capacity utilization of the above industries. We can use capacity utilization to infer what stage of the cycle the current economy is in.
Generally speaking, when capacity utilization exceeds 95%, it means that equipment usage is close to full, and inflationary pressure will rise rapidly as capacity cannot cope. In the market expectation that interest rates may rise, this is positive for a country’s currency.
On the other hand, if capacity utilization is below 90% and continues to decline, it means that there is too much idle equipment, and the economy is in recession. In the market expectation that interest rates may fall, is negative for the country’s currency. The market generally pays the most attention to the U.S. capacity utilization data and industrial production data.