Factory Operating Rate 78.6% in May as Fall Continues

The nation’s factories, mines and utilities operated at just 78.6% of capacity in May as the country suffered the steepest four-month decline in operating rates since the end of the last recession, the government said Monday.

The Federal Reserve Board said operating rates fell 0.6 percentage point last month for an overall decline of 2.2 percentage points since January.

That is the sharpest four-month setback since an identical fall from June through October, 1982, when the country was mired in a recession.

The weakness in the country’s industrial sector has been blamed primarily on delayed improvements in the country’s trade performance, sharp cutbacks in oil and gas production and layoffs in the auto industry.

Michael Evans, head of a Washington consulting firm, said the continuing weakness in manufacturing had prompted him to lower his estimate of growth for the rest of the year to around 2%, similar to last year’s anemic performance. Evans had been predicting that the economy would grow at a robust 4% rate, matching the estimate of the Reagan Administration.

“I just don’t think we are going to get the upturn that I and a lot of people had been expecting,” he said. “Reductions in capital spending, a worsening trade situation and the reduction in high inventory levels are all contributing to sluggish growth.”

The Fed report said the fall in operating rates left American industry operating at its lowest level since December, 1983. The 0.6 percentage point drop in May followed declines of 0.9 percentage point in both February and March and a 0.2% increase in April.

Autos Lead Way

The biggest decline in May came in the motor vehicle industry, where the operating rate fell to 75%, compared to 80.4% the month before. Auto plants had operated at 85.1% of capacity in February, but they have slipped from this level as auto makers lay off workers in an effort to trim high levels of unsold cars.

The operating rate in the mining industry fell to 74.2% of capacity last month, a drop of 5.8 percentage points since January, as oil companies cut back on their drilling plans because of the dramatic plunge in energy prices.

Adding to this weakness have been recent cutbacks in coal mining, the Fed said.

In manufacturing, the overall operating rate fell to 78.8% in May, down from 79.4% in April.

Production of durable goods--items expected to last three or more years--declined to 75.7%, compared to 76.6% in April, while production of non-durable goods slipped 0.1 percentage point to 83.5% of capacity.

The operating rate in the machinery category dropped below 70% in May, about 9 percentage points below the average level of the past two decades, primarily because of production cutbacks by producers of high-technology items such as computers.