The nation's factories, mines and utilities operated at 81 percent of capacity in August, the highest level in almost three years, as manufacturers continued to benefit from a weaker dollar, the government reported yesterday.
The Federal Reserve said the operating rate last month rose by 0.1 percentage point from a revised 80.9 percent level in July. The July performance had previously been reported at an 80.5 percent rate. The operating rates for May and June were also revised upward to 80 percent and 80.3 percent, respectively.
The operating rate has been climbing steadily for the past four months and is now at its highest level since November 1984.
Analysts said the gains provide further evidence of the strength in American manufacturing this year, where employment and production have both climbed in reaction to a nearly 50 percent decline in the value of the dollar over the past two years.
The weaker dollar has made American products more competitive on overseas markets. This gain has not shown up yet in America's monthly trade figures, which showed a record $16.5 billion deficit in July. The problem, analysts said, is that while export sales have risen, the weaker dollar has made the price of imports rise even faster.
When operating rates climb above 80 percent, some economists start to express concerns about possible bottlenecks and rising inflationary pressures.
But Michael Evans, head of a Washington forecasting firm, said he saw no evidence of price pressures building up from the higher operating rates.
"We are in an entirely different ball game now with the foreign competition. People are simply not raising wages or prices," Evans said.
In a second report yesterday, the government said business inventories edged up a moderate 0.2 percent in July as business sales remained essentially unchanged following a big gain the previous month.
Analysts said the rise in inventories may mean slower gains in production in the final three months of the year as businesses are forced to cut back on production to work down inventory levels.
One of the biggest gains in inventories in July was in unsold cars, which climbed by 0.5 percent.
The factory use report said auto makers cut back sharply on car production in August because of the high inventory levels. Car production fell to 61.6 percent of capacity from 69.4 percent in July.
Overall, the operating rate at manufacturing plants climbed to 81.3 percent in August.