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The Federal Reserve today releases industrial production data with good news. Will it draw the right conclusions?

First the good news. Industrial production increased 0.8 percent in November, and capacity utilization for total industry moved up 0.7 percentage points to 71.3 percent. Reuters used the data to describe the economy as “rebounding” It’s more proof that the dramatic government interventions in recent months — especially cash for clunkers and the “heavy dose of government stimulus” in the Recovery Act — worked according to plan.

It's good news but it's a very small step. The hole is very deep. Even if utilization rose to 71.3 percent, more than a quarter of our nation’s productive capacity is still lying idle. Our utilization rates in recent months are lower than any time since this data started to be collected in 1967. Moreover, the increased utilization rate might simply paper over decreased capacity. After all, killing a factory and increasing the workload at remaining factories would increase the utilization rate — but it’s not good news for all the factory workers who lost their jobs or the future of the industry that’s closing those factories.

Our economy has been eroding for a long time. Manufacturing has declined as a percent of GDP from 25 percent in 1960 to 11 percent today. One in three factory workers has lost work since the elections of 2000. That’s not a story of natural economic evolution from buggy whips to high end services. That’s a story of economic decline, as other countries race ahead of us building cars and computers in the 1990s, and solar cells and wind turbines in the 2000s. There’s a limit to how long we can live off past wealth generated by our ancestors and foreign borrowing against our remaining assets. We need to turn things around.

Source: Bureau of Labor Statistics

The question for the Federal Reserve now is which way it is going to push. The Open Market Committee is meeting today to discuss interest rates. Will it also discuss ways to support President Obama’s push to get banks to lend money to businesses that want to hire? On Thursday, the Senate Banking Committee is scheduled to vote on the re-appointment of Ben Bernanke as Chairman. Part of his mandate is the creation of jobs. Will Bernanke support the dramatic government interventions that led to today’s little uptick? Will the Senators voting for on his confirmation hold him accountable for his results? Hopefully, today's data will help push the Fed in the right direction.

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