Monday, February 17, 2014

Great Depressionary Quote of the 21st Century: "Massive Industrial Overcapacity"

The following chart shows industrial capacity per capita (industrial production index adjusted for capacity utilization and population).

Click to enlarge.

That's a 0.998 correlation over 27 years of data (Jan 1967 to Jan 1994). And then... Boom! Trend broken big time. That has to be one of the most impressive trend failures I've ever posted on this blog. It was so incredibly consistent and predictable right up until it wasn't.

It's not where we've been but where we are headed that concerns me most. Now that we have all this extra capacity, what's the worst that could happen from here?

File:Abandoned Packard Automobile Factory Detroit 200.jpg (Albert duce)

It's not just us.

February 17, 2014
China Crackdown Drives Business Off the Books

The accuracy of China's economic estimates faces growing doubts as the government tries to cut industrial overcapacity, recent reports suggest.

February 10, 2014
Guest post: dealing with 500m tonnes of global steel overcapacity

Business models that have emphasised capacity expansion above all other considerations are now very exposed to changing patterns of demand.

January 27, 2014
China’s Aluminum Overcapacity Seen by Fitch Holding Down Prices

Rising capacity at aluminum plants in China, which account for almost half of world output, will weigh down prices this year in a market that’s already over-supplied, according to Fitch Ratings Ltd.

January 23, 2014
PetroChina delays operation of refineries on overcapacity

BEIJING: PetroChina has put off starting up two new refineries and delayed expansion of another to counter the threat of overcapacity as oil demand growth slows in the world's second largest oil consumer, a company official said on Thursday.

China's oil consumption last year grew at its slowest in more than 20 years, calculations on government data showed on Monday, as soft economic growth sliced demand for transportation and industrial fuels such as diesel.

December 11, 2013
Overcapacity Threatens China Growth

The biggest obstacle facing China’s economy? Massive industrial overcapacity is near the top of the list as the country prepares to launch major reforms but seems intent on keeping gross domestic product growth from falling off too quickly.

I have never been more permabearish.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart


Troy said...

I knew what this graph was going to look like before going to FRED . . .

Stagflationary Mark said...