The month-to-month percent change in industrial production gives a good guide to the state of the business cycle. A faster pace of production suggests more rapid economic growth, which may be inflationary. A persistent decline in production may signal a forthcoming slowdown or a continued deterioration in the economic environment that may require the Federal Reserve to cut rates.
Capacity utilization will indicate how close to full-tilt the economy is operating. Readings above 85% indicate that the economy is close to flat-out, that bottlenecks are developing and that inflation will likely begin to rise. A steady decline in capacity utilization is a symptom that economic growth is cooling or that growth is slower than the growth of the capital stock from past business investment.
