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Finance Dictionary and Glossary of Investment Terms
Capacity Utilization
Definition 1.
The Federal Reserve''s measure of manufacturing growth used to gauge inflationary pressure. The capacity utilization rate is provided as part of the government''s Industrial Production Index, a fixed-weight measure of the physical output of the nation''s factories, mines, and utilities. Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report. One of the bigger wildcards in this report is utility production, which can be quite volatile due to swings in the weather. Severe hot or cold spells can boost production as increased heating/cooling needs drive utility production up. Though the rate of capacity utilization is seen as a critical gauge of the slack available in the economy, the market does not completely trust this measure. Capacity is very difficult to measure, and the Federal Reserve essentially assumes that growth in capacity in any given year follows a straight line. One can therefore predict the capacity utilization rate quite accurately based on the assumption for production growth. The 85% mark is seen as a key barrier over which inflationary pressures are generated, but given revisions to these data and the difficulties with capacity measurement, the 85% mark should be viewed cautiously. It would be appropriate to look for corroborating indications of inflation from commodity prices and vendor deliveries.Importance (A-F): This release merits a B-. Source: Federal Reserve. Release Time: 9:15 ET around the 15th of the month (data for month prior). Raw Data Available At: http://www.bog.frb.fed.us/releases/G17/Current.
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