Production Capacity Utilization simply refers to how much a company or industry can produce versus how much they are actually producing.

When production is at full capacity (100%), prices tend to be higher because demand is strong. During the 2008 financial crisis, production utilization dropped to 60% due to weaker demand.

Currently, we are at 77.5%, the lowest since January. While it’s not a bad number, it suggests production is slowing down, and manufacturers are reducing prices to encourage sales.

As a result, prices are falling and are expected to continue dropping, which could bring inflation below 2% sooner, leading the Federal Reserve to lower interest rates.

Graph below shows the hills and valleys over the last 50 years.