percentage of production capacity in use by a particular company, an industry, or the entire economy. While in theory a business can operate at 100% of its productive capacity, in practice the maximum output is less than that because machines need to be repaired, employees take vacations, etc. The operating rate is expressed as a percentage of the ideal 100% production output. For example, a company may be producing at an 85% operating rate, meaning its output is 85% of the maximum that could be produced with its existing resources. If a company has a low operating rate of under 50%, it usually is suffering meager profits or losses, though it has large potential for profit growth. A company operating at 80% of capacity or more is usually highly profitable, though it has less opportunity for improvement.
The Federal Reserve calculates the operating rate of U.S. industry on a monthly basis when its releases figures for industrial production. An operating rate of 85% or higher is generally considered to be full capacity by economists, who become concerned about inflationary pressures caused by production bottlenecks. An operating rate of less than 80% shows considerable slack in the economy, with few inflationary pressures.
