Thursday, April 15, 2010

Capacity Utilization Increases (Remains Low)

Business Week details:

Capacity utilization, or the proportion of plants in use, rose to 73.2 from 73 percent in February.

Industrial capacity utilization was estimated to rise to 73.3 percent, according to the Bloomberg survey median. The rate averaged 81 over the past four decades. Economists track plant operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.

Excess capacity is one reason Fed policy makers see little risk of inflation. Fed Chairman Ben S. Bernanke yesterday said the rate of increase in consumer prices was “subdued,” and said “moderation in inflation has been broadly based.” He also said economic growth will remain “moderate” as the economy contends with weak construction spending and high unemployment.

The chart below shows the historical relationship between the change in capacity and headline CPI. Please note that the below chart only reflects the change in the year over year figure, thus the 2.8% jump in CPI is the difference between the latest 2.4% print and March 2009's -0.4% print.

Another way to view it...

Source: Federal Reserve / BLS

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