Economic News Blog
Posted by: Steven Kline, Jr. 14. February 2014

Capacity Utilization Up 0.2% in January 2014

According to the Federal Reserve, durable goods capacity utilization was 76.0% in January 2014. This is the lowest rate of capacity utilization in the last five months. Compared to last January, capacity utilization was up 0.2%. This is the lowest month-over-month rate of change since July 2013. The annual rate of change has grown slower each of the last three months. And, it is now growing at its slowest rate since June 2010

The backlog index from our metalworking business index looks to be an excellent leading indicator for durable goods capacity utilization. The rate of change in capacity utilization is following the rate of change in the metalworking backlog index nearly tick for tick. It appears that our backlog index leads durable goods capacity utilization by six months or soon average. Our backlog index has been contracting at a significantly slower rate since April 2013. This indicates that capacity utilization should see accelerating growth in the next couple of months.

In order for the annual rate of change in durable goods capacity to reflect the current trend in the annual rate of change of our backlog index, actual capacity utilization would need to reach roughly 80% or a little more by the end of 2014. If this happens, capacity utilization would be reach its highest level in more than a decade and would signal a very strong capital equipment market.

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: furnitureprimary metalsprinting

Decelerating Growth: automotiveconstruction materialscustom processorsdurable goodsforming and fabricating (non-auto)plastics and rubber; textiles, clothing and leather goods; wood and paper

Accelerating Contraction: aerospace; electronics, computers, and telecommunicationsfood and beverage processing; petrochemical processors

Decelerating Contraction: machinery and equipment

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