Capacity Utilization

Industry in the US seems to be struggling a bit in their battle to increase capacity utilization. The Fed just released data for March showing capacity utilization down a bit after several months of increases. As usual, I’ll repeat the caveat that one month of data doesn’t mean much – but it’s a piece of data that we need to keep our eyes on. Here’s the picture:

Needless to say, overall capacity utilization is very low by historical standards (i.e. compared to the past 20 years or so), despite some improvement over the past year. As I’ve said before, I don’t expect any serious increase in inflation until this ratio increases somewhat – which could take while. But if this month’s decline turns out to be a small blip downward in an otherwise positive trend, maybe 6 months or a year from now I’ll start believing people who forecast an increase in inflation…