Factories Operating at 8-Year High
U.S. industry operated at 82.7% of capacity in April, the highest level in more than eight years, the government said Tuesday. Economists said the report renewed inflation fears.
The Federal Reserve Board said the operating rate at factories, mines and utilities last month jumped by 0.3 percentage point from 82.4% a month earlier. It was the highest since March, 1980, when the operating rate was 83.7%.
The rate at manufacturing concerns increased from 82.6% in March to 83.0% in April.
Economists attributed the climb to rising export sales, spurred by the devalued dollar. In a separate report Tuesday, the Commerce Department said the trade deficit in March shrank dramatically to $9.7 billion as American exports surged 23% to a record $28.97 billion.
Price Rise Feared
“Both reports show good health for the economy and a boom developing in the U.S. manufacturing sector. That’s good news. The other side of that is higher inflation and higher interest rates,” said Allen Sinai, chief economist of the Boston Co.
Interest rates edged up in the bond market after the two reports were issued.
Economists consider an operating rate of 85% as inflationary. They fear that prices will rise as factories have trouble meeting both demand in the United States and the rising appetite abroad for U.S. goods.
Operating rates in some industries--paper, textiles, chemicals, petroleum products--already approach or surpass 90%.
“We are in the danger zone and I think that is why the Fed has been tightening,” said Cynthia Latta, an economist with Data Resources, a Lexington, Mass., forecasting firm.
Sinai predicted that overall operating rates would rise to the 84%-85% level by October or November.
“My guess is through no particular manipulation on the President’s part, the election will be about the time when we have really closed up the slack both in labor and products markets,” he said.
“The next President will have a new problem to think about: How do you handle inflation and interest rates?”
Some analysts are hoping that corporations’ efforts to expand capacity will eventually ease the strain. In a survey by the Commerce Department earlier this year, businesses said they would spend 8% more than last year on new plant and equipment. But Sinai said demand for goods would likely increase faster than companies’ ability to expand.
Big Gain at Auto Plants
The April gain in operating rates was the first increase since January, when the rate stood at 82.5%. The level fell by 0.1 percentage point in February and was unchanged in March. Before that, the operating rate had climbed for four successive months, from 81.1% in September.
The April advance was led by the second steep monthly increase at car, truck and automotive parts plants. They operated at 80.9% of capacity last month, up from 79.4% in March and 76.8% in February.
Operating rates at factories producing durable goods, items expected to last three or more years, rose by 0.5 percentage point to 81.1% of capacity. The rate for non-durable goods held steady at 85.7%.
The mining industry, which includes oil and gas drilling, operated at 81.5% of capacity, up from 80.3% in March. U.S. utilities operated at an 81.1% rate last month, down from 81.8% a month earlier.
The changes left the overall operating rate of 82.7%, up sharply from a year earlier, when American industry operated at 79.6% of capacity.
