January 23, 2023 Still More Evidence of U.S. Manufacturing Weakening

New data on capacity utilization indicates that U.S. domestic manufacturing will be facing a difficult next few months.

By Alan Tonelson

On top of lousy new job and output results, we can now make it a discouraging trifecta for U.S. domestic manufacturing: The new output figures released by the Federal Reserve Wednesday also show that capacity utilization keeps falling, too.

This is a statistic I haven’t followed for a while, but many students of the economy see capacity utilzation as a key barometer of industry’s health, and when you consider the definition, it’s easy to see why. Capacity utilization measures the share of the nation’s factory equipment that’s actually in use, and not sitting idle. So it says lots about what kind of demand manufacturers are seeing for their goods.

Therefore, it can’t possibly be good news that for manufacturing overall, capacity utilization fell to 77.53 percent – the lowest such figure since September, 2021’s 77.14 percent.

Moreover, capacity utilization is down from its post-pandemic peak of 80.10 percent last April. And it’s back below its historic average between 1972 and 2021 of 78.20 percent. Moreover, the monthly sequential drop of 1.39 percent was one of several recent manufacturing results that have hit their worst since the peak of the CCP Virus’ devastating first wave, in April, 2020. In that case, capacity utilization cratered by 15.31 percent sequentially.

As far as the super categories are concerned, utilization in durable goods was down monthly in December by 1.21percent to 76.10 percent – also the lowest figure since September, 2021 (which was 74.84 percent). In addition, this gauge of durable goods activity has dropped by 3.32 percent since last peaking (also in April) at 78.72 percent

Non-durable goods’ capacity utilization rate in December rate was higher in absolute terms (79.20 percent) than that for either manufacturing generally or durable goods. But it tumbled from November’s read by a steeper 1.58 percent. Since its peak last March, it’s decreased by 3.27 percent.

These December results are still preliminary. And optimists can note that capacity utilization in all three categories is still slightly higher than in February, 2020, the last full data month before the pandemic’s arrival in the United States in force.

But the recent trend is unmistakably gloomy, and entirely consistent with the likelihood that, like the entire economy, domestic manufacturing is in for some tough sledding over the next few months.

Alan Tonelson, a columnist for Industry Today, is founder of the RealityChek blog (alantonelson.wordpress.com), which covers manufacturing, trade, the economy, and national security. He has written for many leading publications on these subjects and is the author of The Race to the Bottom (Westview Press, 2000).

Copyright, RealityChek, 2022

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