U.S. Industrial Operating Rate Holds Steady at 82.2% in Month

The nation’s industrial operating rate was unchanged in January at 82.2% of capacity as cutbacks in the production of steel and autos offset gains in other areas, the government reported Thursday.

The January operating rate remained at the highest level in almost eight years, but it was the first month since September that the operating rate had failed to move up.

Many private economists believe that the economy, which moved ahead at a robust pace during the second half of 1987, has entered a significant slowdown brought on by high backlogs of unsold products, which will cause cutbacks in production.

While some believe that the slowdown will be so severe that the country will enter a recession, most analysts are forecasting weak growth but no recession in the first half of 1988, followed by rising economic activity for the rest of the year.

David Wyss, an economist for Data Resources Inc., said he expected the overall economy, as measured by the gross national product, to rise only 1.4% this year, down sharply from the 3.8% growth recorded in 1987, with the weakness coming from production cutbacks brought on by sluggish consumer demand.

By contrast, the Reagan Administration, in releasing its 1989 budget Thursday, forecast economic growth of 2.4% for this year.

In January, the operating rate in the auto industry dropped by 1.2 percentage points to 76.7% of capacity. It was the third consecutive monthly decline after auto plants hit an operating rate of 82% in October. The report blamed “excessive inventories” on dealers’ lots for the production cutbacks.

Steel and other makers of primary metals, a sector closely tied to the auto industry, also saw a drop in operating rates, which fell to 89.6% of capacity last month from 91.2% in December.

Analysts said they expected this trend to continue and spread to other industries as retailers, caught with high inventories, slash orders.

The January operating rate of 82.2% was a full 3 percentage points above the operating level 12 months ago, reflecting the boom the manufacturing sector has enjoyed from rising export sales.

The Administration is counting on the strength from record high export levels to offset weakness in the consumer sector and keep the economy out of a recession this year.

For all of manufacturing, the operating rate was unchanged at 82.4% of capacity in January. Manufacturers of durable goods, items expected to last at least three years, operated at 79.9% of capacity, a small decline from December, while manufacturers of non-durable goods operated at 86.1% of capacity.

The industry with the highest operating rate is paper, where plants are operating at 96.5% of capacity, followed closely by textiles, with an operating rate of 94.1% of capacity.

Normally, when operating rates get above 85%, economists begin to worry about bottlenecks and rising prices. But analysts said the expected slowdown in growth should help to constrain prices this year.

“If I weren’t expecting a slowdown, I would be more worried about inflation,” Wyss said.

The mining industry, which has been hard hit by declines in oil prices, had a 0.3 percentage point drop in the operating rate to 80.2% of capacity in January.