Export Sales Boost Factories' Operating Pace : Manufacturers Reap Benefits of Lower Dollar

Associated Press

America's factories, mines and utilities operated at 80.5% of capacity in July, the fastest pace in 18 months, as U.S. manufacturers continued to reap the benefits of higher export sales, the government reported Monday.

The Federal Reserve said the July operating rate was 1.3 percentage points higher than a year ago while steel and other primary metal manufacturers were operating at the fastest pace in almost six years.

"Manufacturing is coming back. There is no doubt about it," said Tom Megan, an economist with Evans Economics in Washington.

Analysts credited the rebound this year to the 40% decline in the value of the dollar over the past two years, which has made U.S. products more competitive on overseas markets.

John Hagens, an economist with Wharton Econometrics of Bala Cynwyd, Pa., said that so far the turnaround has been concentrated in non-durable goods industries such as paper, textiles, plastics and chemicals.

Price Increases Not Expected

Higher export sales in these industries have left them with exceptionally high operating rates. Paper factories were operating at 96% of capacity, the highest level of any industry.

Hagens said that industries making more sophisticated products such as machine tools, computers and telecommunications equipment should now begin to reap benefits from the turnaround in the dollar.

Donald Ratajczak, director of economic forecasting at Georgia State University, said that even in industries such as paper with high operating rates, there will not be significant price increases because of worldwide oversupply.

"Purchasing agents are no longer loyal to one company. They call abroad to see if they can make a better deal," he said. "There is still a lot of excess capacity in the world and that will keep us from getting price pressures."

Largest Increase in Metals

The 80.5% operating rate in July followed a revised operating rate of 80.1% in June and marked the best performance since American industry operated at 80.9% of capacity in January, 1986.

Even with the improvement, the operating rate is still 1 percentage point below the average of the last two decades of 81.5%.

In manufacturing, the operating rate climbed to 81% of capacity in July, with factories making durable goods, items built to last three or more years, operating at 77.4% of capacity, while non-durable goods producers were operating at an even higher 86.4% of capacity.

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