One of the arguments that Republicans are using to support their tax bill is that it will unleash investment. The data says otherwise. Currently, most US economic sectors are operating far below maximum capacity utilization.
Let’s start with manufacturing:
The top chart shows the CU rate for manufacturing while the bottom two charts break the data down into durable and non-durable subsets. All three charts tell the same story: capacity utilization is at low historical levels. Right now, it makes far more sense for companies to bring unused capacity back online rather than buy new equipment.
Let’s turn to computer manufacturing and electric utilities:
Both charts tell a similar story: CU is low.
Mining is the only industry where a boost in investment is possible:
We see far more peaks and valleys.
The counter-argument is that spare capacity is outdated; as orders increase companies will be forced to add new, more modern capacity. The problem with this argument is industrial production is actually very weak:
In order to see an increase in CU, we need industrial production to pick-up. And that’s just not happening.