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This morning’s industrial production data came in weaker than expected and a look under the hood can tell us quite a bit about the current environment.  Industrial production declined -0.2% vs estimates for a 0.2% rise.  Capacity utilization failed to rise for the first time in 15 months.  The reversing trend in industrial production has been apparent in recent months:

Capacity utilization is essentially measuring the amount of productive capacity the country is putting to use.  A reading above 80 generally represents a growing, healthy expansion.  It means we are utilizing the vast majority of our productive capacity.  This is also a fairly good read on inflation as high levels of output tend to coincide with higher than average levels of inflation.  The current reading, at 74.7% and showing no monthly expansion, is cause for concern.  As you can see in the accompanying chart we are still in deeply recessionary levels.  You wonder why this still feels like a recession?  Look no further than this data.  The country simply is not utilizing its full capacity.  The massive output gap is the result.

Capacity utilization generally snaps back aggressively following a recession, however, the recent data shows a leveling off near past recessionary levels.  July, August and September all showed flat growth in utilization – a pretty solid indication of the stagnant US economy.