maandag 17 december 2012

Correlation: Capacity Utilization Vs. Unemployment Rate

It's fascinating how many correlations there exist in the economic world. Today I found this one: Capacity Utilization Vs. Unemployment are inversely correlated. And the best part is: the capacity utilization rate is a leading indicator for unemployment, meaning the trend in the capacity utilization rate can predict the trend in the unemployment rate.

For the U.S. the chart looks like this:

Chart 1: U.S. Unemployment Vs. Capacity Utilization

For the country I live in, Belgium, the correlation works too (one chart goes up, other chart goes down):

Chart 2: Capacity Utilization Belgium
Chart 3: Unemployment Rate Belgium

For Canada it works too:

Chart 4: Capacity Utilization Canada
Chart 5: Unemployment Rate Canada
It even works for the Euro Area:
Chart 6: Capacity Utilization Euro Area
Chart 7: Unemployment Rate Euro Area
And Japan:

Chart 8: Capacity Utilization Japan
Chart 9: Unemployment Rate Japan
Do you know what this means? If we just look at the capacity utilization (which is a leading indicator), we can predict the unemployment rate. And if we can predict the unemployment rate, we can predict the retail sales, GDP growth, current account deficit/surplus, currency ratio, etc... I could never believe capacity utilization rate could be so important and significant.

Cherish this correlation!

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