Operating Rate of Factories Falls Sharply to 78.3% : Strikes in Three Industries Cited as June Pace Slumps to Lowest Level Since 1983

U.S. industry operated at just 78.3% of capacity last month, the slowest pace since 1983, as strikes in the aluminum, lumber and communications industries added to the woes of industrial America, the government reported Wednesday.

The Federal Reserve Board said the factory operating rate plunged by a sharp 0.6 percentage point in June, leaving the production rate at its lowest point since November, 1983.

The operating rate at the nation’s factories, mines and utilities has fallen by 3.7 percentage points from its high point in this recovery and has dropped by 2.5 percentage points just since the beginning of this year.

This decline underscores the weakness in manufacturing, which has suffered for the past two years from the country’s yawning trade deficit.

The operating rate, which had stood at 78.9% in May, has declined in four of the past five months. It now stands 3.4 percentage points below the average of the past two decades.

Business Sales Fall 1.8%

Michael Evans, head of a Washington consulting firm, said the latest weakness bolstered his belief that the economy will not rebound in the second half of the year, contrary to the hopes of the Reagan Administration.

He predicted that the economy, as measured by the gross national product, will expand at only a 2% annual rate in the second half, even weaker than the 2.2% growth rate for 1985.

In a separate report, the Commerce Department said Wednesday that business sales plunged 1.8% in May, the biggest decline in 11 years, while business inventories were falling by 0.3%.

The inventory drop was the largest fall since March, 1983, and showed that businesses, no longer optimistic about future sales, are pushing to reduce unwanted inventories, analysts said. This will likely translate into weak production in the months ahead, analysts said.

The government reported Tuesday that industrial production fell sharply in June. The report on capacity utilization takes the production rate and compares it to total capacity to come up with operating rates.

The Federal Reserve said manufacturing industries operated at 78.6% of capacity in June, down from 79.2% the month before. Production of durable goods, items expected to last three or more years, dropped to 75.3% of capacity while production of non-durable goods fell to 83.8%.

In durable manufacturing, declines were widespread with the exception of a rebound at auto plants, which operated at 79.5% of capacity last month, up from 75.3% the month before.

The operating rate at steel and other primary metal factories dropped to 66.5% in June, a plunge of 4.1 percentage points from May.

The decline was blamed on continued weakness in the steel industry and an Alcoa strike that reduced aluminum production.