Long Term Perspective

The Federal Reserve monitors capacity constraints because they indicate where supply bottlenecks are developing and inflation is percolating. The capacity utilization rate in the economy's industrial sector is down sharply from the cyclical highs established in 1995 and again in 1997, but was showing signs of life in the first half of 2000. The employment-to-population ratio is more comprehensive than the jobless rate in revealing labor market conditions.

Short Term Perspective

The employment to population ratio reached a new peak in April but has since receded to levels seen about ten months ago. The capacity utilization rate has drifted lower as well. This could reassure Fed officials that resources are not stretched to their limit.