U.S. industry operated at 82.1 percent of capacity in December, the highest level in almost eight years, as industrial America continued to benefit from the declining dollar abroad, the government reported yesterday.
The Federal Reserve Board said the operating rate at U.S. factories, mines and utilities was up 0.1 percentage point. A big drop in activity at auto plants was offset by strength in other areas, the government said.
For the year, the operating rate climbed 2.4 percentage points and stood at its highest point since March 1980, when the American industrial sector was producing at 83.7 percent of capacity. Since the early 1980s, many U.S. companies have reduced their capacity because of falling demand and increased competition from abroad.
During the 1981-82 recession, the operating rate fell to less than 70 percent before climbing to 81.8 percent in August 1984 as the nation recovered from the economic slump. Despite the recovery, manufacturers in many industries laid off workers and closed plants in 1985 and 1986 as foreign competition cut into sales.
The Reagan administration began a campaign in 1985 to force the value of the dollar lower to make American products more competitive on overseas markets.
Economists said the effort started to show benefits last year, reflected in the 2.4 percentage point rise in the operating rate. By contrast, operating rates fell by 0.9 percentage point in 1986.
Analysts are counting on manufacturing to keep the country out of a recession this year, believing that rising manufacturing employment and increased business investment spending will offset weakness from an expected slowdown in consumer spending.
Steel factories and plants producing other primary metals operated at 89.2 percent of capacity in December -- 19.1 percentage points higher than a year earlier.
In addition to showing the December operating rate at 82.1 percent, the Federal Reserve revised upward the level of activity in October and November as well to 81.9 percent and 82 percent, respectively.
While most American industries now are operating at higher rates than the average over the past two decades, there are some exceptions. The report said factories making electrical machinery operated at 77.3 percent of capacity in December, up from the level of a year earlier, but still below their 20-year average of 78.2 percent.
In December, the operating rate at auto plants fell by 6.3 percentage points, to 63.9 percent, as auto makers continued to cut production because of sluggish sales.
The weaker sales kept the overall manufacturing operating rate at 82.2 percent of capacity in December, compared with 82.3 percent in November.
Factories making durable goods -- goods with an expected lifespan of three or more years -- operated at 79.8 percent of capacity in December, while factories making nondurable goods operated at 85.8 percent of capacity.
In the nondurable sector, the paper industry operated at 96.3 percent of capacity, the highest for any major sector.