Economic News Blog
Posted by: Steven Kline, Jr. 18. August 2017

Capacity Utilization Contracts for Second Month

(Positive) Durable goods capacity utilization was 74.2 percent in July 2017. The one-month rate of change was -0.7 percent, which was the second month in a row of contraction. The annual rate of change contracted for the 22nd straight month, but the rate of contraction decelerated for the 10th consecutive month. Capacity utilization was contracting at its slowest rate since September 2015, which was the last time the annual rate of change did not contract.

Since June 2008, the GBI: Metalworking backlog index has been a very good leading indicator of durable goods capacity utilization. The 1/12 rate of change for the backlog index has grown at a strong rate for 11 of the last 12 months. In July, the annual rate of change grew at a rapidly accelerating rate for the eighth month in a row. The backlog index tends to lead capacity utilization by seven to 10 months. Therefore, the trend in the backlog index shows that the rate of change in capacity utilization should start growing soon.

In fact, I would not be surprised to see the recent monthly capacity utilization figures revised upward. This has happened with past revisions of capacity utilization, as the revised data comes closer in line with the GBI: Metalworking backlog index.

We use capacity utilization as a leading indicator for a number of industries, although it is not tracked for as many industries as industrial production. You can see the trends in capacity utilization for a number of industries below.

Accelerating Growth: construction materials, food/beverage, forming/fabricating (non-auto), machinery/equipment,  petrochemical processors, printing, wood/paper

Decelerating Growth: automotive

Accelerating Contraction: aerospace, custom processors, furniture, plastic/rubber products, textiles/clothing/leather goods

Decelerating Contraction: durable goods, electronics/computers/telecommunications, primary metals,

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