Re: PKT Seminar: Capacity Utilisation

[Doug Henwood <dhenwood@xxxxxxxxx>]

The Fed measures CU by dividing in index of production by one of capacity.
The production index is put together from various sources - official
data, trade association, etc. - often tweaked by the Fed itself. The
capacity index is put together from Commerce Dept. capital stock figures
and the Fed's own estimates and extrapolations. Though all three indexes
(prod, cap'y, CU) are all computed to one decimal place, they are
obviously best guesses. In the 1970s, it was said that lots of
inefficient capacity was counted when it really shouldn't have been,
meaning that CU was higher than it appeared (thus, in part, the great
inflation); now, it's often said that the Fed underestimates capacity
because of technological change and tighter management techniques,
meaning that CU is lower than it appears. These critiques may be
accurate, but on the other hand, unlike the rest of the US statistical
machinery, the Fed never lacks for money and talent.

Doug

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


On Wed, 2 Nov 1994 NGT@xxxxxxxxxxxx wrote:

> The question is, how is utilisation measured?  In NZ
> our main surveyor asks the question "By how much
> are you able to increase current production without
> increasing unit costs?"  and firms answer in
> categories 0%, 1-5%, 6-10%, etc.  The resulting series
> looks reasonably stationary, exhibits cycles that
> match intuitive demand cycles, and seems to work
> well as an indicator of demand pressure and the
> margins component in prices.
>
> Tim Ng
>
>
>