Things that catch my attention: capacity utilization

One economic data point I track is capacity utilization, which is compiled by the Federal Reserve and reported monthly. Capacity utilization tends to be fairly stable. When there are changes in trend, I take note. Higher capacity utilization suggests growing demand and the potential for more efficient production. Lower capacity utilization can mean the opposite (lower demand), or it can mean that capital was poorly allocated (unnecessary plants were built leading to excess capacity).

Below are graphs showing capacity utilization over different time horizons. Note two things:

First, over the past five months, capacity utilization has suffered its biggest decline since the recovery began in 2009. Levels have now fallen to where they were at the start of 2014.

cap utilization pic 1

 

Second, compared to drops in capacity utilization that occurred during recessions, this decline during the start of 2015 is modest.LT cap U

 

This single data point (the decline in capacity utilization) does not in isolation predict economic trouble. However it is enough of a break from trend that it bears watching.

 

source: The US Federal Reserve, Bloomberg

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3 comments for “Things that catch my attention: capacity utilization

  1. AJH
    May 18, 2015 at 12:21 pm

    Need to look at this ex-energy (crude, ng). This is purely driven by utilization rates plummeting in energy industry.

    • May 27, 2015 at 3:28 pm

      That’s a great observation. I looked at the raw data (see page 7 of the Federal Reserve report — link here: http://www.federalreserve.gov/releases/g17/Current/g17_sup.pdf). I agree that energy weighs on capacity utilization. However the dip is seen for other industry groups too. I maintain that this bears watching but recognize this is just a single data point.

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