Wednesday, August 15, 2012

Capacity Utilization Almost Back to Pre-Recession Levels

Capacity utilization was reported this morning at 79.3% which is a new high for this economic cycle and puts the indicator pretty close to its former cycle highs.  In 2007 capacity utilization peaked at 80.8%.

Increasing capacity utilization is generally a good sign for economic activity but can have important implications for the economy based on how businesses choose to react to the tightening capacity.  If businesses choose to invest in new infrastructure, this can provide a late cycle boom to the economy.  On the other hand if there is demand growth without capacity expansion, one would expect more inflationary pressure.

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