Capacity Utilization

Capacity utilization means the percentage of productive capacity that businesses are actually using. In simple terms, it shows how much of factories and equipment are being used. Capacity utilization is important because high utilization can signal strong demand and possible inflation pressure, while low utilization can signal weak demand and unused resources. For example, if a factory can produce 1,000 units but produces 800, its capacity utilization is 80%. Capacity utilization is not the same as production growth. It measures how fully existing capacity is being used.