market cycles
Credit makes you accountable
The partners need to define boundaries for the partnership, which generally fall into the two dimensions of space and time. Space refers to what we agree to work on together.We may choose to work on one process improvement project, for example, and limit the partnership to that activity for now. Space may be limited to a function—for example, we may agree to work together in the manufacturing or marketing segment of the organization.
The other dimension is time. A time limit should be defined for the partnership—say, one year or for the life of a contractual agreement. A formal agreement can be renegotiated when the time limit expires. This helps partners be more realistic about what they can commit to providing. The longer the time limit, the greater the risk that the partnership will not accomplish its objectives as planned.
Being accountable now and planning what to do in the immediate future are more valuable to the partnership than making commitments based on fanciful predictions.
Low loans capacity utilization is good
Investors can also see low capacity utilization as good news since it means there is little near-term risk of demand getting ahead of supply, sparking inflation. And that means the Federal Reserve should not have to raise interest rates aggressively for quite some time. Large amounts of unused production capacity acts as a buffer that diminishes the inflation risks implicit to rising demand. The other clear sign of the high level of operating leverage in the US corporate sector is the jump in productivity.
Of course, for productivity increases and low capacity utilization to work through to corporate profits, business sales still need to pick up. Therefore, final demand has to increase. For the economy to really soar, businesses have to start spending on hiring workers, new technology and capital improvements. And usually will, once the evidence clearly shows that profits are perking up.