Yesterday’s report from the Federal Reserve showed that capacity utilization for U.S. industry hit a record low of 69.3% in March. The Fed’s calculation is based on the percentage of total industrial capacity being utilized. This report is significant because it means there is more excess industrail capacity in the U.S. than at anytime on record. In March U.S. industry was producing at just over 2/3 of it total potential.
Capacity utilization is considered a leading indicator of inflation and future capital spending. So, this record low reading is an indicator that there is little inflationary pressure in the U.S. economy (at least now - I’m still concerned about the effects of U.S. deficit spending on long-term inflation). It also indicates that industry has little need to spend capital to increase production (even if demand picks up).
Data source:
U.S. Federal Reserve
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