Since 1970, changes in the Capacity Utilization Rate have correlated well with Corporate Earnings. In the past, capacity utilization bottomed (or peaked) 6 to 15 months before earnings. Not so during the present recovery: Profits soared while capacity utilization remains at a relatively low 76.6%.

Earnings vs. Capacity Utilization
capacity_utilization.bmp
Source: ChartoftheDay

Two possible explanations: US companies are outsourcing to low cost countries, driving profits at the expense of US manufacturers. Some finger “quality of earnings” as the culprit, as they were during a similar divergence in 1999-2000.

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Quote of the Day:
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-Gene Fowler (1890-1960)

Category: Finance

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One Response to “Chart of the Week: Earnings vs. Capacity Utilization”

  1. anne says:

    The key is there is no pressure from labor costs and there is fine productivity. So, you get fine earnings. We need a better return to labor.