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Capacity utilization
Output as a percentage of sustainable maximum output, published monthly by the Federal Reserve. It measures how much installed capacity is being used, not how much exists.
Definition
Capacity utilization is output expressed as a percentage of sustainable maximum output for an industry or for the industrial sector as a whole. The Federal Reserve publishes it monthly alongside the industrial production index in its G.17 release.
How it is measured
The Federal Reserve reported manufacturing capacity utilization of 77.5 percent in July 2025, a rate roughly two percentage points below its long-run average measured from 1972 to 2024. That figure describes how much of installed industrial capacity was in use during the month. How much capacity exists is a separate question that the utilization rate does not answer, and the two are frequently reported as though one implied the other.
Why the dictionary version is insufficient
Capacity utilization is often read as a measure of industrial health, with higher taken as better. It is more useful as a diagnostic. Utilization below the long-run average means installed capacity is running with slack, which complicates any account that treats physical capacity as the binding constraint on output, and points instead toward demand, labor, materials or transmission.
Institute analysisSlack utilization and a claimed capacity shortage can both be true at once, because utilization is measured in aggregate and shortages occur at the level of specific capabilities. An industry can run below its long-run average while a particular forging, casting or coating operation is fully booked.
Related terms
Capacity factor · Industrial production index · Nameplate capacity
Appears in
Is American Manufacturing Actually Declining?
Read next
Is American Manufacturing Actually Declining?
Sources
- Board of Governors of the Federal Reserve System, G.17 Industrial Production and Capacity Utilization. federalreserve.gov
- Board of Governors of the Federal Reserve System, Industrial Production: Manufacturing, series IPMAN. fred.stlouisfed.org