America's factories, mines and utilities operated at 80.5 percent of capacity in July, the highest rate in 18 months, as manufacturers continued to benefit from larger export sales, the government reported yesterday.
The Federal Reserve said that the July operating rate was 1.3 percentage points higher than a year ago and that steel and other primary metal manufacturers were operating at the highest rate in almost six years.
"Manufacturing is coming back. There is no doubt about it," said Tom Megan, an economist with Evans Economics in Washington.
Analysts credited the rebound to the 40 percent decrease in the value of the dollar over the past two years, which has made U.S. products more competitive overseas.
John Hagens, an economist with Wharton Economics of Bala Cynwyd, Pa., said that the turnaround has been concentrated in nondurable-goods industries such as paper, textiles, plastics and chemicals.
Higher export sales in these industries have left them with exceptionally high operating rates. Paper factories were operating at 96 percent of capacity, the highest level of any industry.
Hagens said that industries making more sophisticated products such as machine tools, computers and telecommunications equipment should now begin to benefit from the turnaround in the dollar.
He said those industries have lagged because it takes longer to regain lost overseas markets in those areas.
Donald Ratajczak, director of economic forecasting at Georgia State University, said that even in industries with high operating rates, there will not be significant price increases because of worldwide oversupply.
"Purchasing agents are no longer loyal to one company. They call abroad to see if they can make a better deal," he said. "There is still a lot of excess capacity in the world, and that will keep us from getting price pressures."
The 80.5 percent operating rate in July followed June's revised operating rate of 80.1 percent and marked the best performance since American industrial companies operated at 80.9 percent of capacity in January 1986.
Even with the improvement, the operating rate is still 1 percentage point below the average of the last two decades, 81.5 percent.
In the manufacturing sector, the operating rate climbed to 81 percent in July. Factories making durable goods -- items built to last three or more years -- operated at 77.4 percent of capacity, while nondurable goods producers operated at 86.4 percent.
The nation's auto plants operated at 76.4 percent of capacity, up 0.7 percentage point from June, as an increase in production of light trucks and vans offset a decline in passenger cars.
The largest increase occurred in primary metals, where raw steel production showed further strength. At 75.7 percent of capacity, the operating rate for primary metals is at its highest level since September 1981.
However, the total output of primary metal manufacturers is 15 percent lower than it was in 1981. The difference reflects the fact that steel makers have shut down a large number of plants considered to be outdated and inefficient.
The nation's mines operated at 76.3 percent of capacity in July, up from 75.4 percent in June. The improvement reflected gains since spring in oil and gas well drilling as domestic producers have begun to recover from the sharp drop in energy prices last year.
Output at electric and gas utilities rose 0.3 percentage point in July to 81.1 percent.