78.9% of Capacity in April : Industrial Operating Rate Declines to a 3-Year Low

America’s factories, mines and utilities operated at just 78.9% of capacity in April, the poorest showing in more than three years, the government reported Monday.

The Federal Reserve said that the industrial operating rate skidded 0.4 percentage point in April following a 0.3 percentage point decline in March.

Private economists said the declines highlighted the weakness facing the overall economy. Some expressed fears of “stagflation,” a period when accelerating inflation and rising interest rates choke off economic growth.

Several large banks raised their prime lending rate last Friday to 8.25% from 8% amid growing speculation that the Federal Reserve will soon hike its discount rate, the interest it charges to make bank loans.

Fears that the central bank will tighten credit conditions further have added to pessimism about the durability of the current economic recovery and contributed to sharp declines in stock market prices on Friday and Monday.

“The Fed is tightening ahead of schedule, and that throws a lot of doubt into how good a year we will have,” said David Wyss, an economist with Data Resources Inc., a private forecasting firm. “I am not worried about a 1987 recession, but I think a recession in 1988 is becoming a strong possibility.”

The April report on factory operating rates said that auto plants, which were operating at 84.6% of capacity in February, slumped to just 73.9% of capacity in April.

April’s rate of 78.9% was the weakest since American industry operated at 78.3% of capacity in December, 1983, one year after the start of the current recovery.