Falling confidence, weak dollar, wasting employment, backtracking GDP… many things point to a recession, but it’s certainly an odd one.Productivity is rising, for instance, and is up 3.2% this year. That’s not the kind of thing you see in China, but it’s a good strong number for the U.S., and in a recession, any gains are unusual.

Even more puzzling, capacity utilization is also high at 80.1%, though that is down a half percent from last month. In short words, factories and businesses are running briskly, using 80% of available space and resources. We never hit 100%. An 85% level would be the equivalent of all hands on deck.

As you can see from the chart above, a number like 80.1% typically occurs when the economy is healthy. In the past two recessions, the gray bars on the chart, capacity utilization (hereafter dubbed “caput”) dropped to the 70s.

What could this mean? We know that factory orders for durable goods are down somewhat, which is odd if everyone is producing at close to the normal pace. It should mean more finished goods are ending up on the shelves than in customer’s hands. But so far, there’s no sign that inventories are fattening.

Either this recession has not really begun and the utilization number is on its way down to the 70s, or the economy’s problems are more localized than everyone thinks. Almost all economists believe the credit crisis from mortgages and their derivatives has spread to the entire economy. Even if that had not soaked through the whole wadding, the rocketing price of fuel should be spreading its harm across all areas.

These puzzle pieces don’t fit. But, as I mentioned in March though, the caput number smoothes over some weakness. This is why inventory is not stacking up, because the reported number is for the total caput. The production of finished products is only at 76.9% capacity, and that’s in “slowdown” range, though not as low as the 2001-2002 recession. Manufacturing in general comes in at 79.2%, just slightly below normal. There’s more weakness in utilities, though. That area now measure 85.2% of capacity compared with an average level of 86.8%.

It’s the strength in the third component that is masking these slowdowns. Mining is now operating at 89.2% of capacity, which is notably higher than this group’s 87.5% average and far above the 83% and 84% levels it showed during the past two recessions.

This also helps explain why production figures are holding up as well as they are. We are producing very well—in mining.

Still, the whole picture is looking much better than I expected so soon. Let’s hope next quarter sees more improvement. Then we can put another one behind us.

As soon as we get the cost of gas and groceries under control, that is.

Source: This is a Strange Recession