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As Capacity Utilization Rises To Five Year High, Many Wonder: Just How Much Slack Is There?
After last month's surge in industrial production by a revised 1.0%, driven by a 3% jump in Utilities production, December promptly cut to a lower gear rising at just 0.3%, in line with expectations, as Utilities offset last month's surge, falling by 1.4% even though December weather was, last we checked, far more "eventful" (to borrow UPS' term) than November. Factory production also rose at a slower pace, increasing 0.6% compared to the 0.4% in November, while Mining cut its growth pace by more than half, increasing by 0.8% compared to 1.9% in November.
The most notable number in today's Industrial production report was the update of Capacity Utilization, which rose once again from 79.1% to 79.2%, 10 basis point higher than expectations. This was also the highest Cap Utilization print since May 2008 and makes a further case that the economic cycle is in its late stages and that slack, contrary to what economists are repeatedly, and incorrectly, claiming is rapidly dropping to the point where it is indeed time to start thinking about the arrival of the next dreaded "R" word.
From the report:
Manufacturing output moved up 0.4 percent in December, its fifth consecutive monthly increase, and rose at an annual rate of 6.2 percent in the fourth quarter. In December, the index remained 3.1 percent below its peak in December 2007. The factory operating rate in December was 77.2 percent, a rate 1.5 percentage points below its long-run average.
The production of durable goods edged up 0.1 percent in December. The largest gains—about 1 1/2 percent—were posted by primary metals; electrical equipment, appliances, and components; and motor vehicles and parts. The largest declines—around 2 percent—were recorded by wood products and by machinery. For the fourth quarter, the output of durable manufacturing moved up at an annual rate of 8.8 percent, as the indexes for all of its major categories increased. In December, capacity utilization for durable manufacturing was 77.4 percent, a rate 0.4 percentage point above its long-run average.
The output of nondurable goods increased 0.9 percent in December. All of its major categories except textile and product mills posted gains. For the fourth quarter, the index for nondurable manufacturing rose at an annual rate of 4.1 percent, with gains widespread among its major categories. The utilization rate for nondurable manufacturing jumped 0.6 percentage point to 78.3 percent in December, but it remained 2.4 percentage points below its long-run average.
Production in the non-NAICS manufacturing industries (logging and publishing) moved up 0.5 percent in December after having declined in the previous two months. Relative to its year-earlier level, output contracted 2.1 percent.
In December, production of mines advanced 0.8 percent, and capacity utilization moved up 0.3 percentage point to 90.2 percent, a rate 2.9 percentage points above its long-run average. The index for utilities dropped 1.4 percent, and the operating rate fell 1.2 percentage points to 80.1 percent, a rate 6.1 percentage points below its long-run average. For the fourth quarter, the output of utilities rose at an annual rate of 18.6 percent after having declined 6.4 percent in the third quarter.
And on Cap U:
Capacity utilization rates in December for industries grouped by stage of process were as follows: At the crude stage, utilization increased 0.3 percentage point to 88.7 percent, a rate 2.4 percentage points above its long-run average; at the primary and semifinished stages, utilization was unchanged at 77.9 percent, a rate 3.1 percentage points below its long-run average; and at the finished stage, utilization edged up 0.1 percentage point to 76.3 percent, a rate 0.8 percentage point below its long-run average.
Industrial Production charted:
And the more notable Cap Utilization chart:
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Forget with this R word, call it how it is:
The Greater Depression
Correct. The more these central planners try to flatten out the business and natural cycles, the greater the distortions, moral hazard and unintended consequences.
Hedge accordingly.
How? With privat?
There isn't any where to hide.
Easy, physical assets of real value (that you can secure and defend) and a dependable tribe.
Cap utilization --> Inflation. What inflation? Many think DEflation is the big risk.
http://www.planbeconomics.com/2013/12/christine-hughes-what-inflation.html
Cyclical "R" in a secular "D".
Here's why this is another bullshit number to support MOAR TAPER:
!) Of course capacity utilization goes up WHEN THE "CAPACITY" ITSELF SHRINKS CAUSE IT'S EITHER FALLING APART OR MOVING OVER SEAS!
2) It was fucking cold last month so of course utility demand shot up!
3) How much of what was produced was raw materials, chemicals or fuels that were exported?
Kinda hard for capacity not to shrink when there's no reason to fund CapEx.
Rust never sleeps.
Every sector goes through cycles and takes a breather from time to time.
This is only one more ZH article in a series of thousands going back several yeras stating how bad things are or of an imminent collapse.
Alas, those who stayed away from the markets or worse still - shorted the markets are the only ones bruising and licking their financial wounds.
There is no Collapse around the corner and no repeat of 2008-2009. The Central Banks are well coordinated and on top of things and will not allow any repeat of the drops we saw 5-6 years ago.
Stay with the trend because the markets ARE going higher in 2014. Take into account also the fact that this is an Election year - the Gov will not tolerate anything more than a 3-5% pullbck in stocks.
NO ONE on ZH can even propose a serious scenario for another economical collapse playing out for real. It's all empty speculations and insinuations.
We have been in a depression since 2000. There have been periods of artificial debt simulated growth, but we are still in a depression. I would argue that we have been in a depression since 1979 when we had peak industrial production. Any ecomomic growth since that period has simply been borrowed...ahem...stolen.... from future generations.
I'd argue that much of the growth has also occured in bullshit paper promises and financial "products" of mass destruction.
The amount of real capital and collateral of real value on earth has not changed that much by comparison to the liabilities.
Tick tock motherfuckers...
And it isn't growth so much as it's merely wealth transfer via the printing press.
.
Doc, so I post, then read your slightly earlier post.
Agreed..
Most folks do not understand that the genuine capitalist economy went into a depression in 1971 when fiat was disconnected from any sense of reality by Nixon.
Since then it has been a series of bubbles, booms and busts.
Now all growth accounting is ersatz.
The repression has turned to oppression and now that the fraud is rampant and the oppression global, the only thing left will be collapse and a new beginning.
The real issue at hand is whether the criminals will be purged and punished, restoring genuine free market capitalism and prosperity or will the oppression continue and morph to total subjugation, pain, death and poverty.
(Of course, Obamacare is playing its part in the total subjugation path)
Don't blink or else you'll miss the dip buying opportunity at 932AM. Oh, too late.
i must have missed the recovery
It would seem that after five or more years of cutting employees and overhead, capacity of production is pretty limited. Its not like you can add capacity overnight. If we really see any substantial growth, costs will rise quickly, not that I know anything.
Perhaps, but you need to define the growth. Growth of what? Paper and financial "products" of mass destruction? Sure, that's easy to grow as they can be "created" in an instant out of thin air with no energy at all...
I'll create some you buy them and I'll retire to my private island,
now you know why Jamie is richer than you.
"but you need to define the growth"
As you said, the Federal Reserve sees it as paper shuffling. Skimming fees and profits from printed money.
The UN is working on a new definition: http://www.homelandsecuritynewswire.com/dr20140117-time-to-replace-gdp-with-new-metrics-experts
I would rephrase this just a little. If we really see an improvement in the physical economy (which is not bloody likely, but let's assume so for argument's sake), then those firms which have been operating with skeleton crews and zero capex will probably bite the dust pretty quickly as the few remaining bedraggled, bitter employees jump ship in search of better opportunities. Then costs will rise quickly, for production will be bottlenecked by the dissolution of so many zombie businesses; but it won't be a drag on the recovery, since spirits will be high and rising costs will be seen as a growth indicator in a new Era of Good Feelings. I stress once again that this is all stated subjunctively.
What's more likely to happen is that capacity utilization will remain at high levels while costs creep slowly and steadily upward. At the risk of sounding too Stauss-and-Howian, I will attribute this to the Boomers having another decade of consumption left in them (but little appetite for for intensive capital investments), and the younger generations being too impoverished to walk away from those few remaining jobs.
With online shopping and warehousing I see plenty of malls and storefronts closing in the future.
Which should make it worse than the great depression. Go long EBTs, section 8's, healthcare (O' bismalcare) and Fed ponzi.
Numerology, pattern recognition or analysis? The poster should address or at least wave a wand at the central question: with so much cash sloshing around in the corporate world, why wouldn't the squeezing of industrial capacity lead to more investment?
There isn't enough demand to expand capacity. Even if there was the expansion of capacity would not be here. There is a reason beyond resources why Africa is important to corporate America.
I don't get the line of argument : If the PHYSICAL economy as represented by the capacity utilization factor is progressing its a good thing for the real economy.
The question is : if the fiat printing is the MAIN impetus for this economic thrust, albeit helped by cheap frack gas as well, as all confirm, and Krugmanism trumpets : "we were right and doomers were wrong to use more demand side pumping to avoid D-word dystopia", then the only question about this development is : will it truly kick start the real economy without generating hyper inflation and allow SOME semblance of wind-down of Reserve debt, to release the pressure on banksta cooked derivative soup plays all fed on FED's mephistophelian kitchen broth n froth.
If the real growth in US consumer based economy can be sustained above 2-3 % levels, debt wind-down can truly occur in first world. I know the beanstalk is huge and pruning it will take several years. But the question is can the ball start rolling in the other direction before we go over the cliff.
Something tells me the structural imbalances of the world economy will not allow the virtuous circle to take hold. There are big moves afoot to try and decouple world growth from the status quo Reserve/Petroempire/ US consumerista trilogy paradigm. That bean stalk is not to everyone's interests. And that includes the 99% of first world; 'cos they be the adjustment variable of this awesome shift of wealth to global Oligarchs and new behemoths spawned in Asia rising.
2014/2015 are crucial to this exercise of hyper Krugmanistic shaman plays all blessed by the FED.
Trickle down, trickle down, how is your Oligarchy pecker dribling to that hopium sound?
I'm as much of a ZeroHedger as anyone else that's consistently read this site for years, but isn't this another example of the the fact there's just no pleasing "the Tylers".
Every time an economic indicator underperforms, ZerhoHedge trumpets that this reveals how bad the economy really is. When we have an economic indicator that suggests the economy has actually been building up a real head of steam, the ZeroHedge take on it is "Oh no, we're going to reach the limit of capacity soon, so the economy all doomed."
Damned if you do, damned if you don't.
ZeroHedge is the opposite of the stock markets today - here, bad news is bad, and good news is bad.
If the capacity utilization figures were tied by the Tylers to excess inventory production/channel-stuffing etc., then "good" news could truly be bad. Or, if it were demonstrated that capacity utilization is only reaching its upper limits because companies greatly cut back on production capacity during the Great Recession, then the news that slack has all but disappeared from the economy would be, at best, uninformative. While ZeroHedge has certainly discussed the inventory/channel-stuffing issue in the past, the Tylers missed the chance to bring that analysis to bear here.
So if we lose 20 factories and the slack has to be taken up by the remaining factories we have left, utilization goes up. Production doesn't, but whatever we have left is put to work,
Didn't I read somewhere that "burger flipping" is now considered manufacturing in the the good o' UFSA?!
Uh, Oh! The Nuremberg Principles.
Principle IIIPrinciple III states, "The fact that a person who committed an act which constitutes a crime under international law acted as Head of State or responsible government official does not relieve him from responsibility under international law."