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Industrial Production and Capacity Utilization: An Overview on Reading it

Release Date: Middle of the month
(For Industrial Production and Capacity Utilization report)

These two sets of numbers are currently released together by the Federal Reserve in the middle of the month with data from the previous month. In many data sources it appears in the following format, as it did on May 15, 2015:



Prior Revised


Consensus Range


Production - M/M change

-0.6 %

-0.3 %

0.0 %

-0.3 % to 0.4 %

-0.3 %

Capacity Utilization Rate - Level

78.4 %

78.6 %

78.4 %

78.1 % to 78.7 %

78.2 %

Manufacturing - M/M

0.1 %

0.3 %

0.2 %

0.0 % to 0.4 %

0.0 %

Let’s assume for the sake of argument that these numbers represent an accurate broad outline of the recent growth trends in the American economy. That monthly decline we see in the headline Production number, -0.3%, the fifth consecutive such negative number, is borderline recessionary.

Conventionally, Capacity Utilization numbers below 80 are often interpreted as contracting. (Numbers between 83 and 85 are considered near-capacity, and indicate a danger of inflationary pressures.) The monthly numbers for manufacturing in this report are anemic but not necessarily recessionary.

So does this report indicate that a recession is near or upon us? It’s always possible that a recession could sneak up on us with very little notice. This is rare though, and usually comes hand-in-hand with some sort of cataclysm.

It seems more likely that the downturn in the earlier part of the year, including the April period reported above, was a function of upheaval in the Oil and Gas sector and the strong U.S. dollar, which decimated overseas profits for many American companies. (Oil and Gas Drilling was down 14.5% in April and 46.5% year-over-year, according to this report.)

Both of these trends appear at present (May, 2015) to be ephemeral in nature, as the dollar has retreated significantly since then, and the recent disruption in the energy markets seems likely to be resolved in a manner quite constructive for the U.S. economy and its equity markets.

Let’s not forget that more that 80% of American businesses are aided by lower energy prices while less than 20% are hurt by them. And lower energy prices hurt petroleum companies right away, whereas their benefits accrue to the nation as a whole more gradually.  The broader lesson here is that one needs to put these economic numbers into contemporary market context to make sense of their importance.

The Origin and Nature of these Numbers

The Federal Reserve goes into some detail about these numbers in a “Release” on their website. Its title is “Industrial Production and Capacity Utilization.” In past years these two sets of numbers were released separately, but now they are reported together.

According to the Federal Reserve release, “Industrial Production” includes manufacturing, mining, electrical, and gas utilities. Included within the “manufacturing” category are book, magazine, and newspaper publishing.

The Fed explains, “The industrial sector…with construction, accounts for the bulk of the variation in national output…” For this reason, the Industrial sector can be useful in identifying or sometimes even predicting changes in the business cycle.

The Fed says that it gets its data in part from “private trade associations” and “government agencies.” The Fed then uses this and other data to build its “Industrial Capacity Index,” using a methodology in some ways similar to the one it was using in the early 20th century. 

Judging from the “Methodology” section of their release, the Industrial Production portion of the report draws from reliable sources that are refreshed every month.

The sources for the Capacity Utilization number, however, appear to be a good deal less reliable and to be drawn from less fresh data and a greater proportion of “estimation.”

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