Industrial Production and Capacity Utilization

The official name is the Federal Reserve Statistical Release G.17. It is a chain-weighted measure of the change in the production of the nation's factories, mines and utilities as well as a measure of their industrial capacity and the extent available resources among factories, utilities and mines are being used (commonly known as capacity utilization). These measures refer to output, or the physical quantity of items produced, unlike sales value which combines quantity and price; it is expressed as a percentage of real output. The level of industrial production divided by the level of industrial capacity equals the capacity utilization rate. The manufacturing sector accounts for one-quarter of the economy. The capacity utilization rate provides an estimate of how much factory capacity is in use. If the utilization rate climbs too high (above 85%) it can lead to inflationary bottlenecks in production. The Federal Reserve watches this report closely and decides how to set interest rates on the basis of whether production constraints are threatening to cause inflation. As such, the bond market can be highly sensitive to this report. Changes in capacity utilization can also be used (cautiously) as an indication of changing producer prices. This indicator is timely, important and frequently moves markets; it is considered a key factory-sector gauge. Capacity utilization is considered a telling inflation indicator. Industrial Production and Capacity Utilization is scheduled for release at 8:15 (CST) around the 15th of every month by the Federal Reserve Board.

POTENTIAL IMPACT ON INTEREST RATES: MODERATE