Finance and Economics Discussion Series (FEDS)
October 2004
Diverging Measures of Capacity Utilization: An Explanation
Norman Morin and John J. Stevens
Abstract:
In the wake of the recent recovery in manufacturing production, the capacity utilization rates published by the Federal Reserve Board (FRB) have rebounded much more slowly than those published by the Institute for Supply Management (ISM). As a result, some observers have speculated that the manufacturing sector may have considerably less slack than is indicated by the FRB measures. Our view is that the two characterizations of manufacturing slack are not as incongruent as they first appear. This paper discusses the practical and conceptual differences between these measures of capacity utilization, and concludes that the recent divergence simply reflects the character of the latest business cycle.
Keywords: Capacity, utilization
PDF: Full Paper
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