Capacity's Comeback Strongly Indicates Recession's End

In August, industrial production rose 0.8% from July, and the July increase was revised from a gain of 0.5% to a gain of 1.0%. In manufacturing, production was up 0.6% following an upwardly revised gain of 1.4% in July (was 1.0%).

Output at the country’s mines rose 0.5% following a 0.6% gain in July. Utility output, which can be affected as much by the weather as by economic activity, rose 1.9% in August following a 1.6% decline in July.

These increases are a big turnaround from what we had been seeing. On a year-over-year basis, total industrial production is still down 10.7%, with manufacturing down 12.2% and mining down 10.5%. Utility output is basically unchanged on a year-over-year basis, down only 0.1%.

Having two back-to-back gains in industrial production is highly significant, and constitutes definitive proof, in my opinion, that the recession is over.

Breaking the release down further, production of finished products increased 1.1% on the month following a gain of 0.9% in July, but is down 7.3% from a year ago. Output of finished consumer goods rose 1.3% following a 0.8% gain in July, but are down 4.1% year over year. Output of business equipment rose 0.6% following a 1.1% gain in July, but is working its way out of a 14.7% year-over-year hole. Output of materials rose 0.6% following a 1.3% gain last month, but is down 13.0% year over year.

In other words, industrial production is still very depressed, but is starting to come back. That is a classic sign of a recession being over.

The other part of the report, on Capacity Utilization (CU), provides even more definitive proof. Look at the chart below (from http://www.calculatedriskblog.com/). It shows that a bottom in capacity utilization is always seen at the end of a recession.

If you need a single indicator for the end of recessions, historically, this is it. Not only does it always turn at the bottom, but when in recession, it almost never turns up unless the recession is ending. Actually, if you had to pin me down, I would go one step further and say that manufacturing capacity utilization is the best indicator, rather than total utilization since the Utility part of total utilization is as much a function of the weather as it is of the economy.

In August, total CU rose to 69.6% from 69.0% in July (revised from 68.5%). That is two back-to-back increases since it set a record low (data back to 1967) in June of 68.3% (revised from 68.1%).

To be sure, the absolute levels of utilization are still awful. Just keep the following rules of thumb in mind:

Any CU over 85% constitutes an economic boom, and raises the possibility that the economy is going to overheat, causing inflation to spike. CU of 80% is a normal, healthy economy. CU of 75% is a recession.

Prior to this downturn, we had never fallen below 70% (unfortunately, the data does not exist for the 40’s or 50’s, let alone during the Depression, it is possible that we briefly fell below 70% in the 1947 downturn, as the economy was demobilizing from WWII). Since 1972, the average total CU is 80.9%, and 79.6% for manufacturing, 87.6% for mines and 86.8% for utilities.

Thus we are in a situation where the level is bad, but the direction is good. The end of a recession means you are at the point of maximum economic pain -- not that everything is hunky dory all of a sudden, just that the process of mending is starting.

CU for manufacturing rose to 66.6% from 66.1% in July (revised from 65.4%) and 65.1% in June (revised from 64.7%, record low). Mine utilization rose to 82.2% from 81.7% in July and 81.1% in June. Utility utilization rose to 79.7% from 77.3% in July and 78.7% in June.

Over the last year, Utilities have added 1.8% more capacity. By contrast, our capacity has actually declined by 0.7% in manufacturing and by 0.1% at our mines. At current levels of CU, 12.6 points below the long-term average, in manufacturing, there is little need for businesses to invest in more capacity.

This does not bode well for capital equipment oriented firms like Parker Hannifin or Honeywell (HON), however with the rise they might be seeing some faint light at the end of the tunnel. Mining is a lot closer to normal levels of utilization (5.4 below average), so mining equipment firms like Joy Global (JOYG) and Terex (TEX) are much closer to seeing an upturn in domestic orders.

The economy is clearly in a deep, deep hole. We have, however, stopped digging it deeper and are starting the processes of climbing out. I don’t think it is going to be a quick recovery, and the part of the downturn that most directly touches people’s lives -- unemployment -- will be one of the last things to turn.

Notice on the graph that the recovery in CU after the last two recessions was much more gradual than it was in earlier recessions. This mirrors the prolonged “jobless recoveries” we had following those downturns. I suspect the same thing will happen this time around.

Note that we never fully recovered in terms of CU during the last economic expansion, and that the peak was not that much higher than the worst we saw during the 1990 recession. Still, it is nice to be headed in the right direction.

Comments

[Roger Knights:]

"That is a classic sign of a recession being over."

Because we haven't yet had a double-dip recession.

Sep 16 12:04 PM

[chap08:]

Spot on, particularly the ominous words in the last 2 paragraphs.

Sep 16 12:08 PM

[Dirk McCoy:]

The trend in downward capacity utilization will continue as long as labor price controls dampen utilization. Further weakening of the dollar may mitigate this some, but having filled out these reports in the past I know that what is currently called "capacity" is understated in terms of potential capacity, and overstated in terms of short term capacity. The difference lies in capital investment, and companies will be hesitant to do that if they don't sense they can be competitive over the longer term such that they can achieve payback on their investment.

Sep 16 02:33 PM

[WheelsComin...:]

Cash for Clunkers anybody? Keep pulling that demand forward...

Sep 16 02:43 PM

[SmartMoneyJoe:]

JEC is undervalued in my opinion, and their continued performance hasn't missed a beat. When the market turns, Jacobs should be ready to ride the bull. On top of a strong free cash flow position, they have virtually no debt. They operate in four sectors: oil & gas, chemicals, national government and infrastructure, each with plenty of potential. Energy seems to be their most anticipated gainer in 2009, suggesting that clients offer a "commitment to spending" amid low volatility incurred by oil prices. Add this in with a steady pipeline of products, and we see oil & gas well leveraged in the market. I target Jacobs at a one-year $96 tag, and feel an appropriate purchase price should be from $70-$73.

Ag. Machinery and Construction - Manitowoc (NYSE: MTW)I have been a fan of Manitowoc cranes for the past few quarters, now we finally have the market underpricing this company like we want. Manitowoc competes with Terex (NYSE: TEX), an excellent company by all marks with high growth potential. However, I feel that most analysts miss on the fact that Terex's cranes are low quality... workers want Manitowoc! They have already capitalized on international demand, and smashed earnings estimates of 68 cents with 74 cents. Earnings reports also yielded that continuing operations performance rose 119% year-over-year and sales of cranes jumped 56%. Manitowoc's management confirmed that despite worries about the housing construction market, MTW's operations were indeed minimally exposed to the pain.
----------------------...
Look after your pennies, and your pounds will look after themselves.
www.personalbudgetinve...

Sep 16 04:06 PM

[conceptwizard:]

What do the new data tell us?
Global industrial production now shows clear signs of recovering.
This is a sharp divergence from experience in the Great Depression, when the decline in industrial production continued fully for three years. The question now is whether final demand for this increased production will materialise or whether consumer spending, especially in the US, will remain weak, causing the increase in production to go into inventories, leading firms to cut back subsequently, and resulting in a double dip recession.

Global stock markets have mounted a sharp recovery since the beginning of the year. Nonetheless, the proportionate decline in stock market wealth remains even greater than at the comparable stage of the Great Depression.
The downward spiral in global trade volumes has abated, and the most recent month for which I have data (June) shows a modest uptick. Nonetheless, the collapse of global trade, even now, remains dramatic by the standards of the Great Depression.

Sep 16 06:58 PM

[TeresaE:]

Thank you for the chart. I have meant to go and find this info for the past couple years to prove a point to the clueless and I just didn't make the time to do it. And here, you get it to me.

Notice how the CU chart is trending upwards from '02 to '07. Why based on that chart it would lead you to believe that manufacturing was increasing.

Instead, the reality is that factories were moving off shore, or going to auction, at rates NEVER seen before. Thousands, if not tens of thousands, of manufacturing facilities shut down or went from production to distribution of foreign parts.

Where does this "measure" reflect that truth?

Dear gawd, this report is absolutely worthless and if this is the way you think you can gauge the recession is "over," you have no idea what you are talking about.

Factories around the country are going belly up. I know of hundreds of them that are operating with 1 or 2 employees/ owners.
Those lost jobs are your lost customers (or your investments lost customers) and we tout the "end" of the recession.

Yes, stocks are still rising and the government is managing to spend just enough money to play the "better than the hell you expected" game. But that game is coming to an end, or haven't you noticed the plunge in the dollar?

Anyone investing without looking beyond the front page of a report and without thinking about the upcoming government interference and possible banana republic outcome is going to be handed their rear ends sooner than they think.

Sep 16 08:06 PM

[derryl:]

TeresaE,

Mechanization and the use of energy has been dramatically increasing the productivity of labor since the beginning of the Industrial Revolution about 270 years ago. By the mid 1800s observers like Karl Marx saw that labor was becoming virtually obsolete and so a new system of distributing incomes would be required when full employment was not necessary. (NB: don't take this reference as an indicator that I favor socialism; I consider myself an economic free enterpriser and a monetary realist)

In the 1920s CH Douglas saw the same trend and thought up the "social credit" alternative monetary system which featured "national dividends"--money given to everyone as their dividend on the productivity of their nation. The dividend checks replaced or supplemented earned income as a way to get spending money into the hands of consumers to keep up demand for the productive economy.

In 1958 JK Galbraith published, "The Affluent Society", in which he argues that, contrary to market theory that says demand induces supply, with the proliferation of advertising it has become the case that supply induces demand. So Marx and Douglas underestimated the amount and kinds of "stuff" people could be induced to want. If people want more stuff then more productive employment is required, but this metric has limits, and ongoing technological advances in production further increase productivity which reduces the need for labor even as consumer demand for newly invented and heavily marketed stuff increases labor demand.

The upshot of all this is Douglas' observation that in our system the only way to get money is to work for it, but highly mechanized production work cannot employ more than a fraction of your available labor. So goods are plentiful but money to buy them is scarce due to lack of jobs.

Governments have been dealing with this by hiring up millions of bureaucrats who regulate us all to hell and back. This is counterproductive. For the most part we would be better off paying those people the same salaries to stay home and leave the productive economy alone. Unemployment insurance and government pensions are other ways we put money in the hands of people whom we don't need in the labor force.

Milton Friedman saw this same scenario and advocated a guaranteed annual income (GAI). In SA comments I have been advocating a program of 'stimulus checks', $1000/month paid to everyone over 18 with a SS number, run for a year or longer to allow individuals to monetize their personal debts (i.e. pay them off with their stimulus checks) and continue consuming as a counterbalance to the debt deflation we are in.

We already have a plethora of politically motivated piecemeal income replacement programs, plus all the bureaucrats, so it's not as if we're not already doing the same thing a GAI would do. I suppose I share Nixon's enthusiasm. When the concept of a GAI was presented to him he liked it because it would allow him to get rid of bureaucrats. But the inherent reason to support the stimulus checks idea or a more systematic GAI is that "free money" (not redistributed tax dollars, but newly created free non-debt money) is the only realistic and politically feasible solution to debt deflation and a now-or-later deflationary depression.

Sep 17 01:37 AM

[pacalis:]

derryl - So 1000/month leads to a 1-2+ trillion dollar program. That's great if people would save it, but more likely they'll leverage it to the tits and get even deeper than before. And how will it stop? Do you think all of the sudden a bail out of the American public will lead to less risky behavior. We all know the term for that.

In some ways it's playing out well. The US is going to have to inflate out of this mess or default.

Sep 17 03:06 AM

[Michael Clark:]

In fact, the chart shows a downtrend for the entire life of the chart. I could not read the starting date. Our capacity utilization has not recovered from any of the downturns on the chart.

Recovery means a higher high and a higher low. We are trending lower...and we're still trending lower.

Sep 17 08:24 AM

[Mike from NYC:]

"Notice on the graph that the recovery in CU after the last two recessions was much more gradual than it was in earlier recessions. This mirrors the prolonged “jobless recoveries” we had following those downturns. I suspect the same thing will happen this time around.

Note that we never fully recovered in terms of CU during the last economic expansion, and that the peak was not that much higher than the worst we saw during the 1990 recession. Still, it is nice to be headed in the right direction."

I read the responses and NO ONE has mentioned the outsourcing of industrial production, especially that of consumer products, to China and elsewhere.

The USA will never see the rise in CU as we did in years gone by prior to about the mid 90s when American companies exited the USA and marched to China and other low wage countries. When Americans go shopping, if and when the recession ends (that is, the 'real world' recession not just numbers or that on Wall Street), they won't be putting Americans to work other than in sales jobs. Buy a TV, an air conditioner, a pair of pants, a power tool, and it won't put one American factory worker to work. It won't cause the expansion or renovation of factories putting architects, engineers, construction workers, machine manufacturers and everything else that makes a factory tick, back to work.

There is a 'price' to be paid for all the cheap products we buy as there is no free ride and we will witness the full blown effects of the American companies rush into cheap wage countries. We witnessed it during the last recovery, and it will be worse during this recovery - a JOBLESS recovery.

All of you people can recite theory after theory, point to your data and charts and the historicals, but you miss the big picture - common sense and the realization that things have changed far too rapidly during the past 15 years in the USA and it hasn't yet been accounted for in the data.

Maybe I'm the one who is crazy, but so far every prediction I made has come true - that the Dot Com craze was BS pushed by Wall Street, as well as the 'get rich through real estate' bubble pushed by Wall Street and such geniuses as Trump (who by the way is at it again). Flip this house!

Why work to get rich when Wall Street can do it for you - isn't that their premise?

Sep 17 08:49 AM

[TeresaE:]

My entire post was concerning the off shoring and closed production in the US.


On Sep 17 08:49 AM Mike from NYC wrote:

> "Notice on the graph that the recovery in CU after the last two recessions
> was much more gradual than it was in earlier recessions. This mirrors
> the prolonged “jobless recoveries” we had following those downturns.
> I suspect the same thing will happen this time around.
>
> Note that we never fully recovered in terms of CU during the last
> economic expansion, and that the peak was not that much higher than
> the worst we saw during the 1990 recession. Still, it is nice to
> be headed in the right direction."
>
> I read the responses and NO ONE has mentioned the outsourcing of
> industrial production, especially that of consumer products, to China
> and elsewhere.
>
> The USA will never see the rise in CU as we did in years gone by
> prior to about the mid 90s when American companies exited the USA
> and marched to China and other low wage countries. When Americans
> go shopping, if and when the recession ends (that is, the 'real world'
> recession not just numbers or that on Wall Street), they won't be
> putting Americans to work other than in sales jobs. Buy a TV, an
> air conditioner, a pair of pants, a power tool, and it won't put
> one American factory worker to work. It won't cause the expansion
> or renovation of factories putting architects, engineers, construction
> workers, machine manufacturers and everything else that makes a factory
> tick, back to work.
>
> There is a 'price' to be paid for all the cheap products we buy as
> there is no free ride and we will witness the full blown effects
> of the American companies rush into cheap wage countries. We witnessed
> it during the last recovery, and it will be worse during this recovery
> - a JOBLESS recovery.
>
> All of you people can recite theory after theory, point to your data
> and charts and the historicals, but you miss the big picture - common
> sense and the realization that things have changed far too rapidly
> during the past 15 years in the USA and it hasn't yet been accounted
> for in the data.
>
> Maybe I'm the one who is crazy, but so far every prediction I made
> has come true - that the Dot Com craze was BS pushed by Wall Street,
> as well as the 'get rich through real estate' bubble pushed by Wall
> Street and such geniuses as Trump (who by the way is at it again).
> Flip this house!
>
> Why work to get rich when Wall Street can do it for you - isn't that
> their premise?

Sep 17 08:55 AM

[Mike from NYC:]

If companies played 'nice', and were fair, and were socially conscious, there wouldn't be a need for regulation but unfortunately that's not reality. The reality is that companies, Wall Street and others need to be regulated to protect the public and themselves from their own short sightedness and stupidity.

All we need to do is look at China and see what Chinese companies have done to China - pollution so thick that during the Olympics entire industrial regions needed to be shut down. And how about some lead paint for those children's toys and how about a nice dose of melamine with your milk?

Need I say more?


On Sep 17 01:37 AM derryl wrote:

> TeresaE,

> Governments have been dealing with this by hiring up millions of
> bureaucrats who regulate us all to hell and back. This is counterproductive.

Sep 17 09:03 AM

[doubleguns:]

We are entering a life style change not a recovery.

Sep 17 09:06 AM

[TeresaE:]

The problem is that your regulations only accomplish one thing: moving jobs from here to somewhere else. They don't "fix" anything.

The large companies (that used to employ approx 30% of non-government workers) just off shore.

The small companies bear the brunt of the expense and close. Which equates to NO jobs.

Quit asking a corrupt and ignorant organization (the government) to PROTECT you. According to the Constitution, this is NOT their job.

And look around, our Founding Fathers were brilliant and they warned us what would happen if we asked the government to keep us safe.


On Sep 17 09:03 AM Mike from NYC wrote:

> If companies played 'nice', and were fair, and were socially conscious,
> there wouldn't be a need for regulation but unfortunately that's
> not reality. The reality is that companies, Wall Street and others
> need to be regulated to protect the public and themselves from their
> own short sightedness and stupidity.
>
> All we need to do is look at China and see what Chinese companies
> have done to China - pollution so thick that during the Olympics
> entire industrial regions needed to be shut down. And how about some
> lead paint for those children's toys and how about a nice dose of
> melamine with your milk?
>
> Need I say more?

Sep 17 09:11 AM

[Wreckdiver:]

Couple this manufacturing capacity indicator with the S&P 500 turning above the 200 day moving average recently and I agree we are on the way up.

Sep 17 09:13 AM

[Mark Bern:]

There are possibly to flaws I see to the author's argument (other than what has already to expressed in prior comments).

1) Seasonality. Holiday orders are already in process. They may be less robust this year than in previous years, but they still account for a huge increase in production activity.

2) Inventories are very low. Yes, just-in-time manufacturing (JIT) and supply chain management have help reduce the need to hold inventory over previous decades. But I was studying the impacts these improvements and how they had already brought inventories down significantly during the early 1990s. It isn't such a recent adoption as some would imply. Inventories are just being brought back up to normal levels.

As we enter the holiday season, capacity utilization should increase just to bring inventories up to normal levels and preparations for the holidays should increase capacity further. Add to that the impact that the CARS program had on utilization and it becomes very obvious that this has absolutely nothing to do with end demand (i.e., recovery). This is just business as usual, only starting from a much lower level.

It would be much more informative if the author were to show us a chart measuring the same data plotted and identified monthly. Then we could compare what has actually happened in the similar period of prior years. Then we could see how seasonality plays into the picture. It would also be helpful to see inventory levels charted over time on the same basis so we could see how low inventories are relative to "normal" and how capacity levels respond to extremely low levels of inventory, especially just in front of the holiday season.

Think about the seasonal cycle for just a moment: retailers order in July-August, manufacturers begin building inventories August through October, Shipping to retailer distribution centers begins in earnest in late September/October, distribution to stores occurs in late October and early November, product displays are set up by mid-November, and the season starts full bore around Thanksgiving. Production doesn't tail off until the selling season has already started as retailers will need to replenish stocks, so we should see some more improvement over the next couple of months.

It's not the recovery, it's just seasonality. I expect capacity to find lower levels than in June by January. I'm sorry if the truth hurts and i don't like any more than anyone else. I know the economy will recover eventually, but this just isn't the indicator the author makes it out to be, IMHO.

Sep 17 10:08 AM

[Alphameister:]

Excellent comment by Derryl. I do not approve of Friedman's GAI (and neither did he except as the lesser of politically possible evils), but we are gravitating in that direction as will become increasingly evident when Congress increases again (and again?) the period of time during which the unemployed can collect benefits. I agree that ultimately we will need to inflate away a good portion of outstanding debts, not through hyper-inflation but rather through persistent inflation on the order of 3% to 5%.

Sep 17 10:09 AM

[axelrod608:]

Manufacturing is such a small part of the economy these days, it's improvement makes little difference . Not that a little is not good, it is. In the past, these improvements were significant when the manufacturing sector was larger. This measure gets less significant every year as our manufacturing base erodes.

Sep 17 10:16 AM

[Ferdinand E...:]

I'm an optimist. I not only think that things will get better, I know that they will - assuming that Mr Obama forgets about health care for a couple of years. After all, nothing succeeds like success, and for the time being he can forget about a health-care success..

Some of the above comments make a lot of sense - especially the one by Mike (from The City). The people who are planning the recovery - Larry and Ben, and perhaps their foot soldiers - should forget about their interational economics textbooks, and take a close look at what 'internationalism' has done to the US economy. The 'outsourcing' of industrial production is insane, and that is barely the half of it.. .

Sep 17 10:17 AM

[Dirk McCoy:]

Man, if some of you were central planners in a communist America back in the 1800s, we'd have most of our population living in Boston, Philly, NYC, and other coastal cities, and virtually no one living out west, because you wouldn't want the jobs to get outsourced to another state.

Funny that China's central planners accomplished the same thing with their coastal cities.

But rather than looking at it as "taking our jobs", look at it as expansion. Chinese, Indians, Eastern Europeans have joined us in the capitalist model- why shouldn't they be rewarded with jobs?

I think monetary policy, lack of vision, and a scarcity mentality have kept us from realizing that expansion is good, that a better living standard for other states/countries is good, and that a rising tide can lift all boats.

As for the idea that we have too many people for the jobs we have, ask yourself this- if money was no object, would you buy anything? The answer would tell you that a lot of construction workers would be building swimming pools and extra garages, that a lot of car workers would be selling some sweet convertables, that a lot of scrap dealers would be coming up with the metals for that, that a lot of solar installers and utility workers would be figuring out how to come up with more energy, and that there would need to be more quality steakhouses, restaurants, and live theater. And then perhaps more planes and boats to carry people to do missionary work when they've realized all the stuff in the world doesn't mean that much anyway.

Don't fall into the trap of the modern central planners who tell you we'll run out of energy, we'll run out of food, we'll run out of - what, land? if we let our economy keep growing.

Sep 17 10:46 AM

[Jan Paul:]

On Sep 17 10:08 AM Mark Bern wrote:

> There are possibly to flaws I see to the author's argument (other than what has already to expressed in prior comments).
======================...

Excellent summary. I think too that we keep forgetting that the "recession" was a global one and that the "happy talk" is that there is a global recovery and it will happen with or without us. But, we have a lot of companies that are part of that global business community in our markets.


quote (2008)
Consider the following data from our top-line findings:
— Among the S&P 500 companies in our Global Board Index, 76% disclosed international revenues in their latest fiscal year.
— International revenues represent an average of 36.9% of total revenues and are growing at almost twice the rate of overall revenue in the past three years (24.6% vs. 13.5%)

www.egonzehnder.com/gl...
=========

While the Baltic Dry Index doesn't seem to support the "happy talk" very much, let's assume there is some recovery going on globally. That can help what is left of manufacturing here and can help the companies that have other business income from overseas.

What it doesn't help is the huge number of Alt-A and ARM resets coming. I doesn't help the falling tax revenues another wave of real estate issues will have on cities and states and profits and spending and our economy in general. They are talking that this could cause as many as 1,000 bank failures in the next 3 to 5 years.

It doesn't help grow jobs and most expect 10% unemployment for years yet and that hurts spending that our economy depends on. The positive GDP being expected will come from government spending that the private sector can no longer support and it will place an even larger burden on all in the private sector and that reduces their buying power even more.

Add that our falling dollar is killing us at the pump. A drop to 72 on the DXY means $100 oil again as oil goes up about $4 for each 1% drop in the dollar. How do we take part in a global recovery when we are spending $3-$3.50 on gasoline?

As I stated in another thread, we are our own worst enemy.

Sep 17 10:48 AM

[RiskAverseA...:]

Making such claims the "recession" is over despite a Goliath-sized mountain of worthless securities still clogging balance sheets of technically insolvent financial institutions is about the clearest case of putting the cart before the horse as one could get. Now, so long as everyone can be projected to continue looking the other way and accepting fiction for fact, then I suppose your article might have some merit. But will this accommodation continue forever? Not very likely.

Sep 17 11:16 AM

[Mike from NYC:]

Sorry, I missed your comments.


On Sep 16 08:06 PM TeresaE wrote:

> Thank you for the chart. I have meant to go and find this info for
> the past couple years to prove a point to the clueless and I just
> didn't make the time to do it. And here, you get it to me.
>
> Notice how the CU chart is trending upwards from '02 to '07. Why
> based on that chart it would lead you to believe that manufacturing
> was increasing.
>
> Instead, the reality is that factories were moving off shore, or
> going to auction, at rates NEVER seen before. Thousands, if not
> tens of thousands, of manufacturing facilities shut down or went
> from production to distribution of foreign parts.
>
> Where does this "measure" reflect that truth?
>
> Dear gawd, this report is absolutely worthless and if this is the
> way you think you can gauge the recession is "over," you have no
> idea what you are talking about.
>
> Factories around the country are going belly up. I know of hundreds
> of them that are operating with 1 or 2 employees/ owners.
> Those lost jobs are your lost customers (or your investments lost
> customers) and we tout the "end" of the recession.
>
> Yes, stocks are still rising and the government is managing to spend
> just enough money to play the "better than the hell you expected"
> game. But that game is coming to an end, or haven't you noticed
> the plunge in the dollar?
>
> Anyone investing without looking beyond the front page of a report
> and without thinking about the upcoming government interference and
> possible banana republic outcome is going to be handed their rear
> ends sooner than they think.

Sep 17 11:46 AM

[djackson:]

1967


On Sep 17 08:24 AM Michael Clark wrote:

> In fact, the chart shows a downtrend for the entire life of the chart.
> I could not read the starting date. Our capacity utilization has
> not recovered from any of the downturns on the chart.
>
> Recovery means a higher high and a higher low. We are trending lower...and
> we're still trending lower.

Sep 17 11:51 AM

[djackson:]

Reasonable assertion and the graph looks great. As per Mr. McCoy's comment, cap ute is one of the fuzzier stats the Fed compiles. But granting there is an historical correlation between cap ute bottoming and the end of a recession, you have two things to deal with. In each of the historical cases, the Fed shifted its' foot from the brake to the gas peddle while in this case they've been nowhere near the brake in well over a year and the gas pedal has been wedged to the floorboard for approximately the same amount of time. Second, whether we are eventually declared technically out of the recession around now is not going to matter much if the main driver of the economy, the consumer, continues to face contracting income (see recent Census report), contracting credit availability (see Fed and other data), and their main asset (which for most is a house) has seen it value decimated. Government spending only carries you so far because the multiplier is less than one.

Sep 17 11:53 AM

[JAMES CARLINI:]

Some people look at charts, others look out the window.

If you look out the window, you will still see a lot of buildings up for sale, restaurants shut down, condo buildings with foreclosures and empty units. No one is buying unless it's a fire sale - in houses and merchandise.

Sorry but I don't buy off on the "trend" at this point. Everything cannot be distilled down to a chart. AND you cannot compare to 1990 at all. There was a lot of different dynamics back then that are not in place now.

In 1990, you had many people looking for work and they found it as we went into the 1990s. They were rehired. The job pool was more local.

Today, you have a huge amount of workers (degreed, white collar, cutting-edge skills) who have gotten laid off in the last 6-7 years that are underemployed now and replaced by cheaper foreign workers.

You also have workers here on visas and other temporary permits that have not left the country after their visas expired. You have all these people competing for less and less jobs.

When my underemployed friends get jobs that pay what they were making 6-7 years ago, then I will say that the economy has "turned around". Until then, we are in a slump and hopefully not a permanent downturn as one of the posters has suggested.

People who were making $80-$120K who are now making $40K-$50K (if they are lucky) are NOT going to help spend us out of this recession (as they did in 1990).

A 55 yo executive (MBA, great work background) who has been laid off for 20 months from a major company (salary $200K total package) is looking at taking a part-time PC technician job at a school because he cannot find anything else. Tell him the recession is over.

Or a female project manager (MBA, U of Chicago) still looking for a job since January. Tell her we've "turned the corner" and are at the Recession's End.

Chart that.

Sep 17 12:18 PM

[JoeSixPack:]

In a "normal" business cycle, this would be an indicator that we are on an upturn, perhaps. But, we are not in a normal business cycle. In a normal business cycle:

1. We are not sitting on $1 QUADRILLION in frozen up derivatives (with no real hope of unfreezing, since many are related top 3 and 4)
2. We do not have 17% (real) unemployment
3. We do not have a complete financial system breakdown
4. We are not in a spiraling residential foreclosure process, with a commercial real estate collapse just around the corner
5. etc. (and there is plenty of that to go around)

Yes, we still have 350 million people who need stuff, so mnaybe companies cut back a little too much, and retailers stopped a little too much delivery, but to ccall the end of a recession based on signals interpreted over the last 20 years of "normal" activity seems much too optimistic, if not outright foolish.

Sep 17 12:25 PM

[Bad Dog:]

You can't forget about healthcare reform because healthcare is eating our economy. In a few years, it will eat 25% of GDP. Compare that to about 9% in Europe and any other part of the world where they have more sense than God gave lettuce. The US economy is being screwed by an insane system that doesn't deliver good healthcare, where the incentives are upside down, and innovation is lacking. Forget about it? Hah!


On Sep 17 10:17 AM Ferdinand E. Banks wrote:

> I'm an optimist. I not only think that things will get better, I
> know that they will - assuming that Mr Obama forgets about health
> care for a couple of years. After all, nothing succeeds like success,
> and for the time being he can forget about a health-care success..
>
>
> Some of the above comments make a lot of sense - especially the one
> by Mike (from The City). The people who are planning the recovery
> - Larry and Ben, and perhaps their foot soldiers - should forget
> about their interational economics textbooks, and take a close look
> at what 'internationalism' has done to the US economy. The 'outsourcing'
> of industrial production is insane, and that is barely the half of
> it.. .

Sep 17 12:53 PM

[sunnsea:]

They must pay for their employees health care unlike competitors with national health single-payer systems.

Also, how much of the CU figures include US plants in Mexico and China? Do we really know for sure?


On Sep 16 02:33 PM Dirk McCoy wrote:

> The trend in downward capacity utilization will continue as long
> as labor price controls dampen utilization. Further weakening of
> the dollar may mitigate this some, but having filled out these reports
> in the past I know that what is currently called "capacity" is understated
> in terms of potential capacity, and overstated in terms of short
> term capacity. The difference lies in capital investment, and companies
> will be hesitant to do that if they don't sense they can be competitive
> over the longer term such that they can achieve payback on their
> investment.

Sep 17 02:07 PM

[Fred Voetsch:]

The recession is over but stocks are still historically overpriced by a good margin, if you believe we are in a long term, secular bear market, which will include many ups and downs but will cause the stock market to be revalued in a dramatic way.

Anyone who looks at what is really happening and listens to the smartest, independent thinkers out there (hint: Nobody at CNBC is on that list but Richard Russell, Gene Inger, Meredith Whitney, Louise Yamada and John Mauldin are) knows that there is much more pain to come before happy days are here again.

This is a relief rally and a blip upwards known as a "dead cat bounce".

So yes, you're right that this recession is over, but this is not the 1980's or the 1990's or the first part of the 2000's, this is a deflationary era that has already and will continue to destroy wealth by the trillions.

Sep 17 02:33 PM

[75 Year Old...:]

We have never had a 18 Trillion Dollar deficit Before thats more then 1000 times All The deficit spending since our country began . In 1940 nothing had basically changed since 1932 as far as the economy was concerned had we not gotten into WWII who knows how long it might have taken to come back 5, 10 maybe even 20 years . Banks still have $ 657 Billion in TOXIC Loans on the books , All Big Banks But JP Morgan and GS would be declared Insolvent if we went back to mark to market accounting tomorrow . There are over 2,000 Banks on the watch list . So Lets not Pop the corks just Yet , there s still quite a bit trouble ahead for this Economy.

Sep 17 10:00 PM

[mallarde:]

Everyone has said, and I'll try to put it slightly differently. A "recovery" must be more than the market going up and people on CNBC acting giddy. Our economy has structural problems. We have allowed jobs to flow out of the country and millions upon millions of poor -- and not so poor -- workers into our borders to compete for the jobs that remain.

Seeing the return of speculation in the financial markets should not impress us. Americans must change the way they live. They have no bubbles left to cash in on and working for a living got a lot harder. (Maybe we will have a "recovery" limited to the wealthy class.)

Sep 18 01:11 AM

[MichaelZZ:]

I have glanced at a number of comments and the one that stuck out was Mike of NYC's, 09/17/09 ! 08:49am. (re-printed, following my comments)
He was spot on.
I am sure there were many others that offered good information, but his pragmatism leaped off the page.

We cannot solve a problem until and unless we understand the cause of the problem. This is so basic, it should be viewed as being redundant. I am being redundant because it appears that our "leadership" (collectively) does not understand the root cause of our economic malaise.

ROOT CAUSE: Greed. Pervasive greed.

I will address two critical macro subsets of this greed:
1) The massive shift of wealth from the middle class to the ultra wealthy (top 1/10th of 1%) during these past 27-28 years. The beginning was enabled by the March 30, 1981 event regarding John Hinckley. Prior to the attempt upon the life of President Reagan, his tax cuts were absolutely DOA.
The coup de grace was delivered by President Bush’s tax legislations of 2001 – 2003. The largest (2001) was set up by Alan Greenspan’s testimony before Congress in 2000; he appeared to be extremely concerned as to what we, this Nation, would do once the national debt was repaid; would the government begin to buy up common stocks, et cetera.

2) The massive shift of manufacturing to offshore sites.
As Mike from NYC pointed out, when we purchase items manufactured offshore, most of the energies go offshore, i.e., those energies are not recycled within our economy, thus do not produce the jobs that would be produced if those energies remained within our economy.

There are pragmatic solutions to both of the above.
Those interested can e-mail me @ [e-mail]

mz 09/17/09

The following are Mike from NYC’s comments:

·
o Mike from NYC:
o Comments (25)
o Follow
"Notice on the graph that the recovery in CU after the last two recessions was much more gradual than it was in earlier recessions. This mirrors the prolonged “jobless recoveries” we had following those downturns. I suspect the same thing will happen this time around.

Note that we never fully recovered in terms of CU during the last economic expansion, and that the peak was not that much higher than the worst we saw during the 1990 recession. Still, it is nice to be headed in the right direction."

I read the responses and NO ONE has mentioned the outsourcing of industrial production, especially that of consumer products, to China and elsewhere.

The USA will never see the rise in CU as we did in years gone by prior to about the mid 90s when American companies exited the USA and marched to China and other low wage countries. When Americans go shopping, if and when the recession ends (that is, the 'real world' recession not just numbers or that on Wall Street), they won't be putting Americans to work other than in sales jobs. Buy a TV, an air conditioner, a pair of pants, a power tool, and it won't put one American factory worker to work. It won't cause the expansion or renovation of factories putting architects, engineers, construction workers, machine manufacturers and everything else that makes a factory tick, back to work.

There is a 'price' to be paid for all the cheap products we buy as there is no free ride and we will witness the full blown effects of the American companies rush into cheap wage countries. We witnessed it during the last recovery, and it will be worse during this recovery - a JOBLESS recovery.

All of you people can recite theory after theory, point to your data and charts and the historicals, but you miss the big picture - common sense and the realization that things have changed far too rapidly during the past 15 years in the USA and it hasn't yet been accounted for in the data.

Maybe I'm the one who is crazy, but so far every prediction I made has come true - that the Dot Com craze was BS pushed by Wall Street, as well as the 'get rich through real estate' bubble pushed by Wall Street and such geniuses as Trump (who by the way is at it again). Flip this house!

Why work to get rich when Wall Street can do it for you - isn't that their premise?

Sep 18 01:52 AM

[MSimon:]

Single payer will not help the economy. It will in fact cripple it. Health care is where huge gains in productivity can be made. DNA, labs in doctors offices, etc. If government will deregulate instead of increasing regulation.

Sep 27 09:42 AM

[MSimon:]

The dot com craze brought us cheap broadband. Yeah. The exuberance was irrational. It was in fact overall a net gain for the economy.

As to buying off shore. We buy steel. They buy Intel chips. Is that a bad deal? Maybe for steel workers. Engineering unemployment is running 5% (vs a low of around 3%).

Tell your kids to study calculus and get with the program. The mill jobs are not coming back. We still need more engineers.

Sep 27 09:48 AM