Capacity Utilization
Capacity utilization measures the percentage of total production capacity that is currently being used in an economy.
Meaning in Practice
The indicator reflects how intensively factories and industries operate relative to their maximum potential output. It is commonly reported alongside industrial production data. High utilization suggests limited spare capacity.
Why It Matters
Rising capacity utilization may signal strengthening demand and potential inflationary pressures. Low levels indicate economic slack. Central banks monitor it as part of their assessment of price stability risks.
Market Impact
Higher utilization rates can support equities in industrial sectors and increase bond yields due to inflation concerns. Lower rates may signal slowing growth and ease policy expectations. Markets interpret changes within broader economic trends.
Example
If factories are operating at 85 percent of their maximum output, capacity utilization stands at 85 percent.