Capacity Utilization

Capacity Utilization is the Operating Ratio index within the Indices of Industrial Production (IIP), a monthly gauge of factory activity. The Ministry of Economy, Trade and Industry (METI) compiles it from its Current Survey of Production, covering about 13,000 establishments nationwide at 95% response rate. It covers manufacturing only across 139 items, not mining, while its sibling Production Capacity index tracks maximum output under standard conditions. Operating Ratio is actual output divided by that capacity, indexed to 2020 average = 100, never a share of capacity.

The reference period is each calendar month, with returns due to the minister by the 15th of the following month. METI releases preliminary production, shipments, inventories and 2-month-ahead forecasts at 8:50 a.m. on the last business day after the reference month. Revised tables with Excel data, two PDF reports and an annual calendar follow at 1:30 p.m. about two weeks later, adding capacity and operating-ratio tables. Preliminary figures are replaced by revised values, seasonal factors are finalized each January in the annual correction, and weights are overhauled every 5 years.

Operating Ratio aggregates 12 manufacturing groups, shown here as shares of its 10,000-point 2020 weighting.

• Transport equipment and other manufacturing, 25.9%: plants making vehicles and varied goods like textiles, the largest share despite falling since 2015.
• Electrical, telecom and electronic parts, 19.6%: makers of electrical machinery, telecom equipment, MOS ICs, LEDs and wafers.
• Production and general-purpose machinery, 17.7%: equipment that factories use to make goods, the largest weight gainer since 2015.
• Chemicals and petroleum products, 15.9%: factories producing chemical products, petroleum and coal goods.
• Metals, 12.9%: makers of iron, steel, non-ferrous metals and fabricated metal products.
• Ceramics and paper, 8.0%: producers of ceramics, stone, clay and paper goods.

The revised release for October 2024, published December 13, 2024, reported capacity at 97.4, up 0.1% on the month and down 1.2% on the year. Operating Ratio stood at 104.6 seasonally adjusted, up 2.6% on the month, with the original index at 109.1, up 0.1% on the year. In the same release, production rose 2.8% and shipments rose 2.6%, while inventories were flat and the inventory ratio fell 0.9%. The lesson is that capacity can shrink while use rises, so higher utilization need not mean expanding capacity.

1. Base: All indexes set 2020 average = 100 and use the Laspeyres formula, a base-year weighted average from Economic Census value added.
2. Production Capacity index: Each item's monthly capacity is divided by its 2020 average and multiplied by 100, then items are aggregated with capacity value-added weights. For example, 1,050 units against a 1,000 base gives 105.0, with no seasonal adjustment published.
3. Operating Ratio index: Item output is divided by capacity, the ratio is indexed to 2020 = 100, and items are aggregated with production value-added weights. For example, a 0.7619 ratio against a 0.80 base gives 95.2 before averaging. Item Y at 480 against 500 gives 96.0, and weights of 8 and 10 million give a capacity index of 100.0. Operating values 95.2 and 104.2 with 6.4 and 9.0 million weights give 100.5, or 99.5 after dividing by 1.01.
4. Seasonal adjustment: Operating Ratio is seasonally adjusted with X-12-ARIMA, a US Census Bureau program that divides the original index by seasonal and calendar factors. Months missing factors use prior-year seasonal plus same-year calendar factors until the January annual correction finalizes them.
5. Linked history: Past bases join the 2020 base by multiplying old indexes by a link coefficient for series back to 1978.