Friday, October 20, 2006

Capacity utilization...who cares?

I've been looking at some of the PPI numbers that came out today and for some reason, the one that really stuck in my mind is Capacity Utilization, which is at 82% and slightly worse than expected.

Two things came to mind when I looked at this number:

1) It has been argued that US trade deficits could be a good thing because deficits provide the US with capital. But if we're not using all the capital (although I'm sure it is impossible to get to 100% utilization), then aren't the deficits truly excessive and should be therefore reduced?

2) The other thought I had was that the US hit the 300M population mark this week. The US population is actually growing (compared to EU or Japan where it is stagnating or shrinking), so this means in the near future we will need more capital per effective worker in order to maintain our current level of growth. So perhaps then this underutilization is a good thing, as it gives us some room to easily add more workers?

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