Factory Operating Rate Sinks to 80.4%

The nation’s factories operated at 80.4% of capacity in May, down 0.4% from April’s 80.7% and the fifth decline in the past six months, the government reported Monday.

The Federal Reserve Board report for May, coming on the heels of a 0.5% drop in capacity utilization for April, underscores the continuing erosion of strength among America’s industrial sector.

Factory use has declined 2.4 percentage points since the skid began last July.

Overall economic growth slumped to an annual rate of 0.7% in the first three months of this year, the slowest pace since the end of the last recession. The first figures on second-quarter growth--the so-called flash estimated--are due out Thursday.

With the service sector of the economy holding strong, the overall sluggishness showing up in the gross national product has been blamed on the battering that domestic manufacturers are taking from foreign competition. This is primarily because the strength of the dollar makes imports cheaper and U.S. exports more expensive.

Despite declining output, employment has held fairly steady even in the industrial sector--a situation that Michael K. Evans of Evans Economics in Washington said may be about ready to change.

He said strong Christmas sales and strong January demand led many managers to “wishful thinking. Even though there were signs things were starting to weaken, they held on to these employees.

“I think they’ve about run out of excuses, and we’re likely to see some layoffs in the next few weeks,” he said.

Durable-goods manufacturing dropped to 80.9%, down from 81.3% in April. The decline would have been sharper except for a 0.4% gain in motor vehicle and parts production that halted a string of declines that began in February.