Industrial Production and Capacity Utilization

What Are Industrial Production and Capacity Utilization?

Industrial production and capacity utilization measure the output of manufacturing in the U.S. furthermore, are utilized to measure consumer spending, inflation, and economic growth. Industrial production is a measure of the change in the production output of manufacturing plants, mines, and utilities, while capacity utilization is a measure of their industrial capacity and its amount is being utilized.

What Are the Origins of Industrial Production and Capacity Utilization?

Industrial production is perhaps of the most established economic pointer covering the U.S., with over 100 years of historical data. At the point when the Federal Reserve was laid out in 1917, one of its rights was to monitor business activity through output.
In 1922, the central bank began covering manufacturing, mining, and agriculture, and it laid out indexes. In 1956, the attention was on manufacturing, mining, and electric and gas utilities — and these three industries keep on making up the current index of industrial production. The Federal Reserve expanded monitoring output through capacity, and the index of capacity utilization was made in 1967.

Why Are Industrial Production and Capacity Utilization Important?

The most recent data on industrial production and capacity utilization reflect output from the previous month. The two measures are much of the time used to check the course of inflation and where the economy may be going, and are viewed as leading indicators. Manufacturing makes up about a fifth of gross domestic product, and indexes of industrial production and capacity utilization are utilized to follow that output.

How Are Industrial Production and Capacity Utilization Compiled?

Industrial production and capacity utilization are ordered as indexes by the Federal Reserve and are set to a reference period, which are normally updated like clockwork. The current series of data are set against a base year of 2017, and the base year for the next series of data is probably going to be set at 2022. The Fed says the data are regularly acquired from private trade associations and from government agencies, and the collected data are utilized to estimate month to month industrial production.
As per the central bank, the industrial production index is developed from two principal types of source data: output measured in physical units and data on contributions to the production cycle, from which output is derived. These data can incorporate anything from the number of boards of timber delivered to the amount of hours dealt with a production line.
Starting around 2022, the index was based on 296 types of industries as per the definition set by the North American Industry Classification System, or NAICS. Manufacturing represented by far most (77 percent) of the extent of part industries in industrial production, followed by mining (12 percent), and utilities (11 percent). Manufacturing covers production of durable goods like cars, computers, and created metal products, and of nondurable goods including food, drinks, materials, garments, gasoline and plastics.
Below are diagrams of industrial production and capacity utilization from 2013 to 2022.

Industrial Production

Industrial production is communicated as an index, however investors and analysts take a gander at the month-on-month change. From 2013 to 2022, the index went from a low of 84.2 in April 2020, while manufacturing decelerated due to lockdown measures in the beginning of the COVID-19 pandemic, to a high of 105.6 in April 2022, as companies looked to keep up with demand due to supply-chain disruptions.

Capacity Utilization

Capacity utilization is communicated as a percentage of total capacity in manufacturing, mining, and utilities, with 100 showing full capacity. Capacity from 2013 to 2022 went from a high of 79.9 in August 2018 to a low of 63.4 in April 2022, when numerous manufacturers checked production due to COVID-19 limitations. In 2022, capacity returned to pre-pandemic levels.

When Are Industrial Production and Capacity Utilization Data Released?

The Federal Reserve ordinarily releases reports on industrial production and capacity utilization at the middle of the month, normally between the fifteenth and the eighteenth of the month, at 9:15 a.m. ET.

Upcoming Release Dates for Remaining Months of 2022

Reporting Month	Release Date
June	July 15
July	August 16
August	September 15
September	October 18
October	November 16
November	December 15

## How Are Industrial Production and Capacity Utilization Interpreted? Industrial production and capacity utilization have a close wonderful relationship. The [correlation coefficient](/correlationcoefficient) between the two from May 2013 to April 2022 was 0.999, as indicated by TheStreet.com's analysis. That is just below 1, which would demonstrate 100 percent correlation. Industrial production's changes are in lockstep with those of capacity utilization on a month-on-month change basis over the 10-year period. High readings on industrial production and capacity utilization would demonstrate that the economy is developing at a quick pace and consumer demand is. However, there are risks to prices expanding due to wage tensions and rising costs for raw materials, and such factors could cause inflation at the consumer and producer levels to speed up. Then again, low readings on the two indicators would recommend weak consumer demand, converting into slowing economic growth and declining prices. In any case, the correlation between industrial production and the [consumer price index](/gdp) was low to direct from 2013 to 2022, with a coefficient of 0.34. ## How Do the Stock and Bond Markets React to the Release of Industrial Production and Capacity Utilization? The stock and bond markets frequently respond to the pace of growth in industrial production. Moderate growth would demonstrate that the economy was extending at a nice pace, possibly sending stock and bond prices higher. Growth that was startlingly quick over a period of a couple of months or so could forecast a sudden pick-up in inflation, which would raise worries that the Federal Reserve would fix monetary policy, and fears of rising interest rates could make stock and bond prices fall. From January to April 2022, industrial production rose an average 0.9 percent, which was over the average 0.7 percent increase from 2013 to 2022. Inflation accelerated during the initial four months, making the central bank convey messages of a potentially more tight monetary policy position. That sent stock and bond prices lower, with major [stock indexes](/marketindex) entering [bear market](/bearmarket) region, and yields rising to their highest in years.

FAQ

What's the Relationship Between Industrial Production and GDP?

Growth in industrial production would show expansion in the economy overall. Manufacturing as a whole accounts for about a fifth of GDP, so it fundamentally affects the economy than services do.

What Industries Are Included in Industrial Production?

Manufacturing, mining, and gas and electric utilities are the fundamental parts remembered for industrial production. The Federal Reserve keeps on making changes when important to reflect worker production in existing industries as well as emerging ones. Over the course of the last century, the index initially centered around agriculture yet that's what in the long run eliminated, and in the past couple of many years has included computer equipment and semiconductors along with everything else.

Are Industrial Production and Capacity Utilization Leading or Lagging Indicators?

Industrial production and capacity utilization are lagging indicators since they are based on manufacturing data from the previous reporting month.