Well before the rising layoffs and economic disruptions in the first quarter of 2025, the global economy was registering a recessionary rise in unemployment and excess capacity, along with an accelerating decline in world dollar liquidity (WDL). Hoisington’s Q4 2024 Review and Outlook explains the historical significance of these key indicators. Here’s a taste:
Factories across the world are growing increasingly idle. Global industrial capacity utilization (CAPU) has fallen significantly, and a rising unemployment rate has followed suit, signalling that the available factors of production globally are progressively more redundant. The reason this is relevant is that since 1990, this thirty-four year correlation is consistent with the U.S. experience where data has been available for seven decades. As such, CAPU appears to be the dominant supply-side variable in determining inflation in the United States, China, Japan, U.K. and the EU.
In the United States, CAPU has plummeted to levels lower than at the start of all of the cyclical recessions since 1967.
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