The Structural Nature of Capacity Underutilisation and Unemployment

Backlog_vs_capacity

Backlogs vs Capacity Utilisation

As discussed in the previous article, Capacity Utilisation responds to Order Backlogs.  The nature of backlogs are a reflection of deficits in manufacturing capacity.  After the investment to reconfigure manufacturing is made, capacity increases to eat through the backlogs.

U6_vs_capacity

Underemployed vs Free Capacity

The bifurcated nature of this recovery is thus:  Structural unemployment is not just about worker skill, but unspecialised workers will idle whilst specialised workers reconfigure capacity to suit output to demand.  The present indications suggest that this process is now mature enough that the under-employed numbers will likely drop as the need for less specialised workers increases with production.

With all of the talk about balance sheet recessions and inventory recessions, I’m actually surprised that output misconfiguration isn’t more actively discussed in the same framework.

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One Response to The Structural Nature of Capacity Underutilisation and Unemployment

  1. CSquaredTrading says:

    I like it. Great post.

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