Highest in 9 Years : Industry Operating Rate Tops 84% in November

American industry is using more of its capacity than at any time in nine years, the government said Wednesday, heightening concerns that the economy will overheat and inflation accelerate.

The Federal Reserve said the operating rate at factories, mines and utilities was 84.2% last month, up from 84.0% in October. It was the seventh increase in eight months and the highest rate since November, 1979.

In a related report, the Fed said its industrial production index in November increased by 0.5% for the second month in a row. It now stands at 139.9% of its 1977 base, reflecting gains in most sectors, particularly light truck manufacturing and production of business equipment.

At the White House, spokesman Marlin Fitzwater said the figures were “good for steady growth in the economy.”

Accelerating Demand

But David Berson, an economist with the Federal National Mortgage Assn., said: “We’re starting to approach levels of capacity utilization in some industries that will mean higher prices. If growth continues at this rate, we’ll soon find most industries passing on higher prices and we’ll see monthly increases in the inflation numbers.”

As capacity use edges toward 85%, economists fear factories will have trouble producing enough goods to meet demand, leading to shortages and price increases.

A separate release by the Commerce Department supports the view that economic growth, after moderating in the July-September quarter, is rebounding.

Business inventories rose a modest 0.2% in October as sales shot up 1.2%. Economists said the combination likely will spur an increase in orders to factories, placing greater strain on capacity.

“The balance between inventories was so good and so lean that it signals strong production in the months ahead,” said Allen Sinai, an economist with the Boston Co., an investment house. “That’s good for economic growth . . . but it is too strong for comfort on inflation and interest rates.”

A third report, on the merchandise trade deficit for October, ran counter to the trend of the other statistics. The trade gap narrowed by 3.1% to $10.3 billion as exports fell by $317 million and imports dropped an even bigger $643 million.

However, David Jones, an economist with Aubrey G. Lanston & Co., a government securities trader in New York, said improvement in the trade deficit will slow in the months ahead. He said capacity strains will make it difficult to manufacture more exports, and strong domestic demand will suck in more imports.

Jones said a monthly improvement in the trade deficit normally would trigger a rally in financial markets, but bond and stock prices fell in early trading because the other reports heightened the fear that the Federal Reserve will nudge interest rates higher to curb inflation.

Higher Rates Reported

That decision could have been made Wednesday when a Fed committee finished a two-day private meeting to set monetary policy, he said. The committee does not disclose its decisions publicly.

In the capacity report, the Federal Reserve said the manufacturing operating rate climbed to 84.5% last month, up from 84.3% in October.

Producers of both durable goods--”big ticket” items ranging from bicycles to battleships--and non-durable goods reported higher rates. The rate at durable goods plants was 83.1% in November, up from 82.9%. Non-durable goods producers recorded a 0.1 percentage point gain to 86.5%.