Capacity Utilization Grows at Fastest Rate Since November 2013

According to the Federal Reserve, durable goods capacity utilization was 76.3% in March 2014. The rate of capacity utilization was 0.8% higher than it was in March 2013. This is the second month in a row of accelerating growth in the monthly rate of change. The annual rate of change held steady at 1.0% and has been virtually flat since July 2013.

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 has been 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 so average. Our backlog index has grown two of the last three months. The annual rate of change has grown faster each of the last two months. The strong upward trend since the summer of 2013 is pointing to a significant increase in durable goods capacity utilization, which further indicates an increase in capital spending.

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: petrochemical processors; primary metals; printing

Decelerating Growth: aerospace; automotive; construction materials; custom processors; durable goods; furniture; plastics and rubber; textiles, clothing and leather goods; wood and paper

Accelerating Contraction: electronics, computers, and telecommunications; food and beverage processing; forming and fabricating (non-auto)

Decelerating Contraction: machinery and equipment