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Is that an example you made up to illustrate your point about BLS cap util stats, or does the BLS really think capacity increases when making a faster chip? Would GM's cap util increase by making faster cars? Larger cars?

Yes they do. I was not aware of it until I began digging into some of the numbers and confirmed it with both BLS and the Fed. Regarding the cars, They do definitely factor in things like reliability (this would be factored over time), features (like climate control or power windows even if there is no added labor or cost to the builder), and fuel economy, among others. I would assume that horsepower or torque would also be a factor. My example about processors is better because it is more easily quantified and they told me so specifically. But I have had conversations with and read papers by someone who has been very influential in the implementation of this with BLS and automobiles and appliances were both cited as strong examples. I am not privy to all of the factors but I think what is important is the fact that they do use this in their calculations so it has to be considered when looking at the data.

Stunning.

I knew they did this with GDP, CPI, PPI (for which I can see a small argument in their favor), but I see no basis to adjust capacity utilization for product features.

As an example, the wafer fab process to make processor chips is the same regardless of speed. The chips are built to run at max speed, and the clocks are retarded (post manufacture) on chips sold at slower ratings as per marketing plans. Obviously the fab line didn't run at half capacity because at the last step the CPU clocks are backed down.

I've also been digging deeper into BLS and BEA stats. Might you have a link to any BLS explanations about this stuff?

I've also wondered recently what our stats and reports would look like if they just reported the unadulterated numbers - maybe inflation adjusted, maybe constant dollars - but this philosophy of converting non-monetary aspects into some kind of 'cash-equivalent' is highly subjective, hidden, and they lack the judgement and background to do so (even if warranted) in all categories.

I would think GM, Intel, Phelps Dodge, etc would know their capacities better than BLS.