What Happens to Industrials (XLI) When Capacity Utilization Falls Below 75%?
Industrial capacity utilization below 75% signals excess factory slack. What happens to inflation, earnings, and policy at these levels?
How Industrials (XLI) Responds
Scenario Background
Capacity utilization measures the share of installed industrial capacity actually in use. The long-run average runs near 80%. Readings above 83% historically precede rising inflation as producers hit capacity limits and pricing power returns. Readings below 75% signal substantial slack: factories are underutilized, producers compete for demand, and pricing power erodes.
Read full scenario analysis →Historical Context
Capacity utilization fell below 75% in the 1982 recession (trough 70.9%), 1991 (78.5%, never breached 75%), 2001-2003 (trough 73.6%), 2008-2010 (trough 66.7% in June 2009, the lowest since records began in 1967), and 2020 (trough 64.2% in April 2020, a new post-war low). The 2008 episode kept utilization below 75% for nearly 3 years, reflecting the severity of the industrial recession. Historically, sub-75% utilization coincides with core CPI below 2% (2002-2005, 2009-2014, 2020-2021). The 2022-...
What to Watch For
- •Manufacturing utilization specifically (not just total industry) below 75%
- •Industrial production six-month change turning negative
- •ISM Manufacturing new orders below 45 confirming forward weakness
- •Durable goods orders falling month-over-month for consecutive months
- •Copper-to-gold ratio declining sharply
Other Assets When Capacity Utilization Falls Below 75%
Other Scenarios Affecting Industrials (XLI)
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