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!