Industrial capacity utilization rate falls to 69%

June 15, 2009 12:03 p.m.

Statistics Canada has released the latest capacity utilization rate which shows that the fall in industrial capacity utilization is the largest decline on record. Current utilization is 69.5 %. The normal rate during a lower unemployment part of the cycle is 84 %. This sharp decline indicates the severity and depth of the recession. Given such a low capacity utilization rate there is zero risk of inflation outside of the oil cartel and even factoring in the cartel's power to raise prices very little risk. With respect to the rising yield curve in the bond market see the recent discussion of this in the FT June 10 and 15th in which I participated by asking a   question and received an interesting answer which the Financial Times published as part of the forum.The question and answer forum is entitled "Could bond yields smother the recovery."
The FT's expert on the bond market, John Wraith, an analyst from RBC Capital markets based in London and head of their sterling rates   product development division   argued that although high unemployment and quantitative easing applied in the short term markets to keep yields low for the time being, long term rates had risen and would rise as the supply of debt instruments increased. He did grant the argument that current unemployment and the general depth of the recession would keep the yield curve flat for a time, but was concerned that over time as recovery set in rates might rise steeply and he pointed to rise in long term rates to 4.5 % which has already occurred for 30 year debt.

But why must we assume that the Fed and central banks generally cannot also buy long term debt and thereby influence rates in a downward direction so long as we are still in the depths of the slump?

This issue is important because as the head of the I.M.F. Dominique Strauss Kahn has argued it is crucial for the recovery to succeed that governments and central banks not withdraw stimulus prematurely.