Newspaper article THE JOURNAL RECORD

Industry Operating Level Reaches 8-Year High in May

Newspaper article THE JOURNAL RECORD

Industry Operating Level Reaches 8-Year High in May

Article excerpt

WASHINGTON - U.S. industry operated at the highest level in more than eight years in May, the government said Thursday, but overall capacity use has not yet reached a level economists say would clearly fuel inflation.

In a separate report Thursday, the Commerce Department said business sales fell 0.2 percent in April after strong increases in the previous two months. Inventories of goods held on shelves and backlots rose a moderate 0.5 percent in April, following a 0.3 percent increase in March.

The Federal Reserve Board said U.S. factories, mines and utilities operated at 82.9 percent of capacity in May, a 0.2 percentage point increase over April.

It was the sixth increase in eight months and the highest operating level since March 1980 when the rate hit 83.7 percent. Operating rates rose by 0.3 percentage points in April, after dropping 0.1 percent in February and remaining unchanged in March.

Analysts had expected the modest rise in overall operating rates in May after the Federal Reserve reported Wednesday that production levels among U.S. industries had increased 0.4 percent.

Some economists are expressing concern that the upward creep will push prices higher as manufacturers have difficulty producing enough to meet demand. But others say the May report is good news because operating rates cooled in the hottest industries and increased in sectors with excess capacity.

``A lot of people ocus on a few industries and extrapolate from that and say we're facing inflationary bottlenecks,'' said Lawrence Chimerine, chairman of the Wefa Group, a Philadelphia-area forecasting firm. ``That's not true. Generally speaking, capacity rates are not that high.''

The May level of 82.9 percent was 3 percentage points higher than the 79.9 percent rate a year ago, but analysts generally do not consider the overall operating rate to be inflationary until it reaches 85 percent.

Rising capacity levels have been attributed to the surge in exports caused by the devaluation of the dollar. But so far, consumer demand in the United States appears to have been restrained enough to allow manufacturers in most industries to meet both domestic and foreign demand comfortably. …

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