Wednesday, January 21, 2009

Industrial Destruction

The Lehmann Letter ©

The financial and business news has focused so heavily upon the banking system’s ailments that the underlying economy’s bad fortune has received short shrift.

For instance, on January 16 the Federal Reserve reported ( that capacity utilization had fallen to 73.6 percent in December. (Capacity utilization answers this question: What is the current rate of industrial production expressed as a percentage of the maximum? Industrial = Mining, manufacturing and public utilities.)

This seems like an ordinary and uninteresting statistic until one places it in the context of the chart below.

Capacity Utilization

(Click on chart to enlarge)

(Recessions shaded)

If you update the chart with the latest 73.6 reading you can see that capacity utilization has fallen to the low point reached during the 2001-2002 dot-com recession. That’s lower than the low point attained in all previous recessions except 1981-82. Since the trough of the current recession could be months away, there’s a chance that capacity utilization will fall to a post-WWII low.

That’s bad. Industry still counts, and it’s alarming how swiftly manufacturing (the lion’s share of this statistic) has collapsed. The only remaining question is, “How low will it go?”

(The chart was taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2009 Michael B. Lehmann

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