The United States economy is growing. However, the United States economy is not growing very fast and the growth does not appear to be very deep.
January figures for Industrial Production were released today and about all one can say about the numbers is that the rate of growth is positive but modest. And, the rate of growth seems to be declining.
Year-over-year, industrial production grew at a 3.4 percent annual rate in January 2012.
However, this is down from a 3.9 per cent, year-over-year, rate of growth in the fourth quarter of 2011 and down from a 6.2 percent, year-over-year, rate of growth in the fourth quarter of 2010. In the fourth quarter of 2009 the economy actually declined by 5.5 percent, year-over-year.
The numbers for industrial production are not inconsistent with the pattern of growth, year-over-year, of real Gross Domestic Product. In the fourth quarter of 2011, the year-over-year rate of increase in real GDP was 1.6 per cent. In the fourth quarter of 2010, the similar measure stood at 3.1 percent. For the fourth quarter of 2009, like the figure for industrial production, the economy actually declined by 0.5 per cent.
Looking at the numbers in this way does not give one the upbeat feeling one can often get from just looking at the month-to-month change in the numbers.
Furthermore, information on the capacity utilization of industry (also released today) and the under-employment of working age people still indicates that there is a massive problem in our use of physical capital and of human capital.
Capacity utilization in manufacturing stands at 78.5 percent in January. That is, more than 20.0 percent of our industrial capacity is standing idle! The important thing to me here is that the capacity utilization in the United States has been on a downward path since the 1960s. Please check the chart below.
Reading the chart from the left to the right shows a dramatic downward trend with each subsequent peak in capacity utilization being lower than the one previous to it.
The question that remains to be answered is whether or not the trend will be continued with the “peak” in capacity utilization we are going to reach this time around.
The United States has a growing mis-match in the industrial capacity it has built and the industrial capacity that is useful. This mis-match must be worked off…there is not an over night solution to this problem.
The same situation exists in the labor markets. The under-utilization of working age people has grown since the 1960s. In the 1960s about one in eleven or twelve people in the United States were under-employed. The measure of under-employment now stands somewhere between one in four or one in five people that are of working age.
The United States has a major problem. Jobs and industrial capacity are not matched with the present makeup of our human and physical capital. These under-employed persons and this under-utilized plant and equipment are not going to be matched up any time soon. Thus, under-employment of labor and under-utilization of industrial capital are going to be around for a long time. And, the rates of economic growth we are experiencing will not do much to help the situation.