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Why Would Anybody Invest When Capacity Utilization is This Low?

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By Hale Stewart  (originally published at Bonddad blog) Why Would Anybody Invest When Capacity Utilization is This Low? A central selling point of the tax bill is that it will encourage investment.  But that assumes that high tax rates were the primary reason why business wasn’t investing.  Instead, the data says business investment is weak because the U.S. has a ton of spare capacity. First, let’s look total capacity utilization: It has peaked at lower levels in each of the last three expansions. Let’s break the data down into durable and non-durable CU: Both categories of production have ample spare capacity, with non-durable production having greater capacity. Finally, let’s look at crude, intermediate and final stages of production:

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by Hale Stewart  (originally published at Bonddad blog)

Why Would Anybody Invest When Capacity Utilization is This Low?

A central selling point of the tax bill is that it will encourage investment.  But that assumes that high tax rates were the primary reason why business wasn’t investing.  Instead, the data says business investment is weak because the U.S. has a ton of spare capacity.

First, let’s look total capacity utilization:
Why Would Anybody Invest When Capacity Utilization is This Low?
It has peaked at lower levels in each of the last three expansions.
Let’s break the data down into durable and non-durable CU:

Why Would Anybody Invest When Capacity Utilization is This Low?
Why Would Anybody Invest When Capacity Utilization is This Low?
Both categories of production have ample spare capacity, with non-durable production having greater capacity.
Finally, let’s look at crude, intermediate and final stages of production:
Why Would Anybody Invest When Capacity Utilization is This Low?
Why Would Anybody Invest When Capacity Utilization is This Low?
Why Would Anybody Invest When Capacity Utilization is This Low?
All three have plenty of spare capacity to bring online if needed.
So, will we see a huge wave of investment as a result of the changed tax bill?  The data says no.
Dan Crawford
aka Rdan owns, designs, moderates, and manages Angry Bear since 2007. Dan is the fourth ‘owner’.

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