Wednesday, February 18, 2009

Capacity Utilization...

In support of my discussion on inventories below, the following graph is illustrative.

Industrial capacity is being idled at a quick pace. Although we have not reached levels of the 80s, we are getting there quickly. Note, however, that this is somewhat of a lagging indicator because it bottoms out after a recession has passed...the draw down in inventories occurs prior to the restart of production, which is why I favor watching inventories more than industrial capacity utilization numbers.