Capacity Utilization

What Is Capacity Utilization?

Capacity Utilization (TCU on FRED) is the Federal Reserve's monthly measure of the percentage of US industrial capacity currently in use. It is published as part of the same G.17 release as industrial production, with sub-indices for manufacturing, mining, and utilities.

Utilization measures the ratio of actual industrial output to the level that could be produced with full use of installed capacity. The Federal Reserve estimates capacity using survey data and capital-stock measures.

Why It Matters for Markets

Capacity utilization has historically been a leading indicator of inflation and capital expenditure decisions. Utilization above 82% has signalled capacity constraints, which generate pricing pressure as marginal supply becomes scarce. Conversely, utilization below 75% signals slack — firms have excess capacity and reduce capex plans.

For markets, the release moves manufacturing-sensitive equities and capex-exposed stocks. Bond yields react modestly because utilization captures past activity. The Fed has historically cited utilization as one of several inflation-forecasting inputs.

How to Read the Print

Manufacturing utilization sub-index. The most relevant sub-component for inflation analysis. Manufacturing utilization at 80%+ has historically been the threshold for capacity-driven price pressure.

Year-over-year change. Utilization rates have a structural downward trend over the past 60 years (improved capacity measurement, globalisation, shift to services). The YoY change strips out the secular trend and isolates the cyclical signal.

Industry breakdown. Sub-indices for high-tech, motor vehicles, and basic metals provide finer-grained signals. High-tech utilization at high levels signals AI/semiconductor capex demand; motor vehicle utilization signals consumer-durable demand.

Historical Context

US capacity utilization peaked at 89.4% in 1973, the highest in the data series. The 2010-2019 average was approximately 76.5%. The pandemic shock pushed utilization to 65% in April 2020, the lowest post-WWII reading.

Through 2024-2025, capacity utilization has run in the 77-78% range — broadly in line with the 2010s average but somewhat below the 80%+ levels of the late 2010s expansion. The persistently moderate utilization despite tight labour markets has been one of the puzzles of the cycle and contributes to the Fed's softer reaction to nominal-wage data than historical relationships would suggest.