I was intrigued by Art Shipman using an apparent decline in capacity utilization to point out the possibility of a coming recession. It is quite clear that every recession is accompanied by a sharp decline in capacity utilization. However, not every decline (even fairly large declines) in capacity utilization results in an "official" recession. Capacity utilization as a measure relies upon "capacity" to produce, and the "utilization" of that capacity. But folklore would have it that the Industrial capacity of the US has been declining. Is that really so?
So I looked at the time series on Fred for US Industrial Production. This is posted below.
This does not look like declining industrial production to me. So what gives? If one digs deeper, one finds out that this is an index based on the dollar value of the US industrial production. So now if we were to divide this series by the CPI, we get a more interesting graph shown below
This however, does not take into account the rise in the US population. So if we divide the series by the population index, we get the following very interesting graph
This shows very clearly, that US industrial capacity peaked in 1968, went back up till 1973, declined sharply till 1975, rose a bit till 1978, declined sharply till 1982 and then remained declining at a slow rate ever since.
1968, likely is the end of the continental US oil production, 1973, the OPEC oil shock, and 1978 the Iran oil crisis. An interesting set of likely causation to the end of US industrial might?
The Decline of American Industry in one maybe two graphs
Submitted by Clonal Antibody via email