Factory Operating Rate Down to 83.8% : Federal Reserve Cites Continuing ‘Decrease in Utilization’ in 1989

The operating rate for U.S. factories dropped in May to 83.8% amid signs the economy has continued to slow in recent months, the government said today.

The Federal Reserve said the May operating rate was 0.3 percentage point below April’s 84.1% and matched the rate in March. The rate increased in April for the first time since it hit a 10-year high of 84.3% last December.

“The operating rates for manufacturing and for utilities both declined in May,” the Fed said. “Most manufacturing industries showed some decrease in utilization in May, continuing the easing that started at the beginning of the year.”

Economists had worried that the steady upward march of operating rates last year signaled increased inflationary pressures. The closer U.S. industry gets to full operating capacity, the greater difficulty it has producing enough to meet demand, leading to shortages and price increases.

Analysts generally consider an operating rate of 85% or above as an indication of inflationary pressures.

Until recently, the Fed has been pushing up interest rates in an attempt to cool those inflationary pressures without slowing growth so much that the economy slides into a recession.

In another report today, the Federal Reserve said the pace of industrial production was unchanged in May after a 0.6% hike in April. Production had edged up 0.1% in March after falling 0.2% in February, the first decline in a year.