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 declined again in November. The capacity utilization rate continues to drift lower. As conditions worsen, Fed officials will no longer be reassured that resources aren't stretched to their limit, but worried about a prolonged economic slump.
Federal Reserve Policy
Capacity Constraints
Unemployment Rate vs. Hourly Earnings
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