The SBA and the Fed

This could be a prelude to tomorrow's release on Industrial Production and Capacity Utilization from the Federal Reserve.

Press Release:
The Ceridian-UCLA Pulse of Commerce Index™ (PCI) by UCLA Anderson School of Management fell 1 percent in August.

This is the UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce IndexTM

In July, the capacity utilization rate for total industry moved up to 74.8 percent, a rate 5.7 percentage points above the rate from a year earlier but 5.8 percentage points below its average from 1972 to 2009.

One of the Federal Reserve’s favorite gauges of the economy is the capacity utilization rate. The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Should capacity utilization stall or even fall, it may prompt concern from the Federal Reserve when they meet in two weeks.

As a result, the interest rate savings from a low variable rate of interest available from a SBA 7(a) loan should persist for some time.