Re: PKT Seminar: Capacity Utilization

[Doug Henwood <dhenwood@xxxxxxxxx>]

Wait a minute. If they've scrapped capacity, doesn't that mean they're
running at a higher rate of utilization? But other folks say the Fed's
IP/CU series misses new capacity. Are these arguments a wash?

Doug

Doug Henwood [dhenwood@xxxxxxxxx]
Left Business Observer
212-874-4020 (voice)
212-874-3137 (fax)


On Wed, 2 Nov 1994, Michael Perelman wrote:

> The notion of capacity utilization as an indication of economic pressure has
> come up.  I think that this measure is not very revealing.  I made this same
> point in a book, Keynes, Investment Theory and the Economic Slowdown.
>
> Prior to the early 1980s, business carried a great deal of extra capacity.
> Running close to 80% indicated at the time approaching capacity restraints.
>
> Since that time, firms have scrapped much of their most inefficient capacity.
> As a result, an 80% capacity utilization would be equivalent to a historical
> level of something less, say 70 or 75%.
>
> --
> Michael Perelman
> Economics Department
> California State University
> Chico, CA 95929
>
> Tel. 916-898-5321
> E-Mail michael@xxxxxxxxxxxxxxxxx
>