Last Friday the Federal Reserve released its annual revisions for industrial production, capacity, and capacity utilization.
The revisions show that the decline in industrial production in late 2008 was even steeper than previously thought. However, in the past year the growth rate of industrial output was revised upward to 5.8% from 5.5%.
More noticeably, there was a huge downward revision for manufacturing capacity. As the chart above shows, new figures on capacity among US manufacturers shows that right now they are at levels barely above a decade ago.
Meanwhile, capacity utilization for manufacturers was revised upward to 75% from 74.3%. At the worst of the recession in mid-2009, manufacturers were operating at a 60-year low of 64.4% of capacity. In the past twenty years, capacity use has averaged about 78%. In other words, capacity use has largely climbed most of the way back to the long-term norm.
Given this increase in utilization, record high corporate profits as well as cash on the balance sheet, plus full expensing for tax purposes, we anticipate a substantial increase in plant and equipment investment in 2011.
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Posted on Monday, March 28, 2011 @ 1:44 PM
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