JACKSON HOLE, Wyo. -- Last Friday, the



industrial production and capacity

numbers for March. The production figures had nothing meaningful to say about the policy outlook, but the recent path of the capacity numbers says that no sane


voter will seriously suggest easing anytime soon.

Industrial capacity growth accelerated during each of the four years through 1996. Then it decelerated in both 1997 and 1998, and the first three months of 1999 have preserved its downward trend.

Three tidbits underscore the degree to which capacity growth has recently decelerated:

  • The March year-on-year growth rate of 4.7% marks the smallest since June 1995. Capacity now shows three straight monthly decelerations for the first time since March-May 1997.
  • Capacity increased only 0.3% in both January and March (it rose 0.4% in February). This marks the first time in four years that capacity has increased as little as 0.3% twice in a three-month span.
  • Capacity is on track to post a second-quarter increase identical to its first-quarter (annualized) gain (4.2%). These will mark the smallest back-to-back quarterly capacity increases since the third and fourth quarters of 1994.

Why does this matter?

Because it was global demand stagnation that gave rise to the capacity glut. (Keep in mind that world


fell to 2.3% during the 1991-1997 period from 3.1% during the 1981-1990 period. Also keep in mind that growth in Japan, which boasts the world's second-largest economy, dived to an average 0.8% per year this decade vs. 3.8% last.)

And it was the capacity glut that allowed firms to get away with paying sorry wages. (Keep in mind that real wages have grown only an average 0.3% a year during the 1990s vs. an average 2.1% during the 1950s and 1960s.)

And it was sorry wages (along with a host of favorable supply shocks that sent prices for imports, commodities and energy goods plunging) that helped constrain the broad price indices.

So what happens now?

Global demand continues to improve, the capacity glut continues to shrink, and wage and price increases accelerate.

Some New Era, huh?

Side Dish

Many thanks to the reader who recommended the

Freddie King: King of the Blues

set. Can't stop playing the latter portion of the second disc.


can drain a billion fadeaways and


can dish a billion assists and


still won't win a title.

How much did your compensation increase last year?

Less than 3%.

Between 3% and 6%.

More than 6%.