Capacity Utilization Reaches Highest Rate Since June 2008

According to the Federal Reserve, durable goods capacity utilization was 76.8% in May 2014. This is the highest rate of capacity utilization since June 2008. Also, this is the fourth month in a row of accelerating growth in the monthly rate of change. Capacity utilization was 1.8% higher this May than it was in May 2013. This it the fastest rate of month-over-month growth since November 2013. The annual rate of change inched up to 1.2%, which is the second month in a row that the annual rate of change has grown at an accelerating rate.

The backlog index from our metalworking business index is 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. Oour backlog index leads durable goods capacity utilization by seven months on average. The annual rate of change of our backlog index has improved since May 2013. This strong upward trend 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: automotive; durable goods; machinery and equipment; petrochemical processors; primary metals; printing; textiles, clothing, and leather goods

Decelerating Growth: aerospace; construction materials; custom processors; furniture manufacturing; plastics and rubber; wood and paper

Accelerating Contraction: electronics, computers, and telecommunications

Decelerating Contraction: food and beverage processing; forming and fabricating (non-auto); machinery and equipment