Released by the Federal Reserve around the fifteenth of the following month, this monthly report has gained importance in the recent times due to its source and also the coverage of the reports. It records the industries output as well as the capacity utilization including everything from cars, umbrellas, medical equipment and even paper clips. It does not matter if the goods are for the domestic orders or for the export orders. Experts believe that the industrial production reacts quickly to the business cycle. It also has a good record of predicting changes in manufacturing employment, average hourly earnings and personal income.

The capacity utilization aspect is also an important indicator in regards to the potential production of the industry. The Fed look at what industries in the US are presently producing and then compare that output with what they can potentially produce if all were running at their maximum capacity. This report is significant in three respects which are as follows:

·        A nations economic power is judged by its ability to produce goods when they’re needed

·        It is useful to know how under-utilized manufacturers and utilities are in case more output is required in the future

·        The capacity utilization rate has a predictive value i.e. it’s a good leading indicator of business investment spending and can warn of building inflation pressures.

Manufacturing is the most sensitive part of the economy, a factor that makes industrial production a classic indicator of current business conditions. Simply, when economic activity is increasing, factory production rises with it and vice versa. As the business cycle approaches its peak, factory output also tops out.

The document of the Industrial Production and Capacity Utilization released by the Federal Reserve can be summarized as below:

1. The “total index” summarizes the change in industrial production during the last four-month period. It is reflected on the quarterly GDP as it is closely related to the GDP growth data.
2. The total amount of consumer goods versus those of business goods. Strong sales will encourage more production in both categories
3. Three components of the industrial production index which is industrial output (82%), mining (8%) and utilities (10%)
4. The percentage change in production for these groups over the past year are listed
5. The capacity utilization shows how much spare capacity is left at factories, mines and utilities. If the utilization rate is below 80%, it tends to discourage new business investments and may even have an effect on unemployment news and vice versa.
6. A segment which emphasizes on the plans by companies to invest in new plant and equipments
7. Production for military and aerospace hardware is measured
8. Indication of whether automakers  see enough demand to fill dealers’ lots
9. Companies by investing in high technology products like computers, sophisticated office equipment, semiconductors, and related electronic components, reflects a willingness by firms to make the necessary investments to enhance productivity levels
10. The motor vehicle output on the manufacturing industry is shown as it distorts swings in the industrial production overall
11. Since the automakers account for 4% of the GDP and is responsible for 7 million jobs, a separate column is dedicated to this aspect.
12. The capacity utilization rates are shown in this segment. When it comes to capacity utilization rates, not all industries share the same views. For example, a motor vehicle industry might pose a serious strain if it is operating at 85% capacity whereas it won’t pose the same strain on the primary metals producers at the same rate. This table gives a pre-indication on which industries are likely to increase future capital investments. Producers who are operating at high capacity utilization rates are likely to increase outlays for new facilities to relieve current production pressures and improve productivity. This will improve the employment situation as new employees are supposed to be hired for handling new facilities which will have an overall positive effect on the economy.  

A favorable Industrial Production and Capacity Utilization data will normally have a positive effect on the value of the dollar, consequently having a negative effect on the precious metal and vice versa.