The operating rate of the nation's factories, utilities and mines dropped from 82 percent in September to 81.8 percent in October, as production slowed in the country's industries.
The rate of capacity utilization at factories was 82.1 percent in October, following an 82.2 percent rate the previous month, the Federal Reserve Board reported yesterday. Operating rates for mining dropped from 77.3 percent in September to 74.4 percent last month, and the rate for utilities declined from 82.9 percent to 82.8 percent.
Economists said the rate for the mining sector dropped steeply because of earlier stockpiling of coal before a threatened strike.
At the same time, the amount of new plant and equipment that would increase industries' capacity expanded 0.7 percent from the second quarter to the third quarter. Capacity for manufacturers increased 0.75 percent, the Fed said.
"One should expect to see capacity growing," said Robert Ortner, Commerce Department chief economist. "Capacity utilization has leveled off at the level below where inflation has taken off in the past."
Many economists have said that at a capacity utilization rate above about 84 percent, shortages and bottlenecks would occur, leading to sharp price increases. Earlier this year when operating rates grew very quickly, economists forecast reaccelerating inflation because they feared capacity utilization would exceed that inflation point.
However, other factors have mitigated the inflation effect. For example, imports of some equipment have prevented shortages that might otherwise have occurred if domestic firms alone had to gear up to supply all of the capital goods.
"There's plenty of capacity abroad," Ortner said. A major reason for the inflow of foreign equipment has been the high value of the dollar, which has made imports cheap relative to domestic goods. "That's why inflation hasn't picked up yet," Ortner said.
The operating rate for utilities is below its average rate of 88.6 percent between 1967 and 1982, and the rate for mining is also below its average of 86.5 percent for that period.
The manufacturing rate, however, is slightly higher than the average rate of 81.8 percent between 1967 and 1982.
The capacity utilization rate for automobile production rose slightly from its low in September, the Fed said. However, the motor vehicle and parts industry declined one percentage point because of a sharp cutback in truck production, the Fed said.
The highest rates were for the paper and paper products industry, which had a 97.3 percent operating rate, and for the rubber and plastics products industry, with a 94.5 percent rate. Both rates were for September -- the latest month that figures are available
The lowest operating rate was for the iron and steel industry, which had a rate in September of 66.4 percent. That rate contrasted with the 38.8 percent low reached during the recession in 1982, but is still below the average rate of 82.3 percent reached between 1967 and 1982.