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U.S. manufacturers poised to ramp up spending

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WASHINGTON -- U.S. industrial production last year grew faster than the overall economy, speeding up especially in the fourth quarter. Yet factories added only about 60,000 jobs over the year, just one-third the rate of growth for all employers.

Part of the explanation is that manufacturing made greater strides in productivity than service firms did. That means factories got more out of their workers and machinery.

But data released Friday suggest that U.S. manufacturers are at a point where they may soon have to bulk up. The Federal Reserve said industrial production rose 0.3% in December -- the fifth straight month of increase -- and resulted in a 6.8% annualized gain for the fourth quarter.

Significantly, so-called manufacturing capacity utilization reached a post-recession high of 77.2% last month, up from 76.9% in November.

Capacity utilization measures how much a factory is using its existing labor and capital, on its current schedule, to produce goods. Capacity usage had fallen to less than 65% during the Great Recession but now is back up to the average of the last three decades, according to Capital Economics.

For some manufacturing sectors, such as autos, primary metals and machinery, utilization is well above their multidecade averages, Fed statistics show. That means that given the recent pickup in demand overseas and the current level of domestic consumption, it may not be too long before factories boost their hiring or investment for plants and equipment -- or both.

"It's good news for manufacturing," said Daniel Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation. "There're ingredients right now for a capital spending boom." 

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