Industrial Production and Capacity Utilization Source: Federal Reserve System Frequency: Monthly Availability: Two to three weeks following the reported month Possible Impact on Interest Rates: Larger-than-expected monthly increase or increasing trend is considered inflationary, causing bond prices to drop and yields and interest rates to rise.
Current Data Reported April 14, 2000: Industrial production was up 0.3% in March, pushed higher by a 0.4% gain in the manufacturing component, which accounts for 89% of the total. A strong increase in auto production last month contributed to a 0.8% rise in durable goods manufacturing. Nondurables were flat in March. Capacity utilization ticked lower to 81.4%, well below the 85% threshold considered inflationary. See "Overview" below for more information.. Overview: The industrial production index measures the physical volume of output of the nation's manufacturing sector, including factories, mines, and utilities. Goods-producing industries account for about 45% of the economy. The balance, the service sector and construction industry, account for the remaining 55%. They are not covered by this report. The index is expressed as a percentage of production in a base year. Currently, the base year is 1987. The data is typically expressed as an increase or decrease from the prior month. Capacity utilization, released at the same time, measures the extent to which the nation's capital is being used in the production of goods. The utilization rate rises and falls with business cycles. As production increases, capacity utilization rises. Economists closely watch capacity utilization for signs of inflation pressures. There is a common belief that when utilization rises above somewhere between 82% and 85%, prices pressures increase, resulting in inflation. The slower the production pace, the better the bond market likes it. Conversely, a strong production and capacity utilization report leads to a market sell-off.
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