What is Capacity Utilization Index?
The Federal Reserve Board’s Capacity Utilization Index is a monthly reporting of the capacity percentage of resources used by corporations and factories to produce finished goods in manufacturing, mining, and electric and gas utilities. The index attempts to capture the concept of sustainable maximum output. This means the highest level of output that can be maintained by a manufacturer or plant after considering realistic work schedules, normal downtimes, and assuming sufficient availability of inputs.
Why is Capacity Utilization Index important?
Its relationship to production index makes the Capacity Utilization Index an invaluable tool for manufacturers. Manufacturers can identify how efficiently inputs are being used in the production process. Gain a clearer understanding of how to produce more without increasing costs. Even get an idea of how much consumer demand can be expected in the future. As technological and structural changes occur within the industry the degree of tightness the index represents will be affected. For example, because of mill consolidation within the steel industry, a report of 85% capacity utilization today equate to roughly 7% less tonnage than the same reading meant in 2008.
What should you do?
Understanding the Capacity Utilization Index will provide a clearer image of production trends and how they could impact your business. Majestic’s CORE Report follows the Capacity Utilization Index; along with other indicators every week to see where the market stands.