FACTORY USE REMAINS HIGH

FACTORY USE REMAINS HIGH

U.S. industry operated at 82.2 percent of capacity in January, matching the

December level as the highest operating rate in almost eight years, the government said Thursday.

The Federal Reserve said that further growth in the operating rate was held back last month by cutbacks in steel and automobile production.The last time that U.S. industry operated at higher than 82.2 percent of capacity was in March of 1980, when production was at 83.7 percent of capacity.

During the 1981-82 recession, the operating rate fell below 70 percent. The operating rate climbed to 81.8 percent in August of 1984 as the country pulled out of the recession. However, manufacturers in many industries laid off workers and closed plants in 1985 and 1986 as foreign competition cut into sales.

The Reagan administration began a campaign in 1985 to force the value of the dollar lower in an effort to make U.S. products competitive once again on overseas markets.

That effort began reaping benefits last year with the operating rate rising by 2.4 percentage points in 1987. By contrast, operating rates had fallen by 0.9 percentage point in 1986.

The administration, which Thursday released its latest economic forecast as part of its 1989 budget, is counting on a resurgent manufacturing sector to keep the country out of a recession during this presidential election year.

Many private economists, however, believe that growth will slow considerably, especially during the early part of 1988, as businesses cut back on orders in an effort to work down high levels of unsold goods.

Economists said the January report on factory use showed that process had already begun.

The operating rate in the auto industry dropped by 1.2 percentage points in January to 76.7 percent of capacity. It was the third consecutive monthly decline after auto plants hit an operating rate of 82 percent in October.

Steel and other makers of primary metals saw their operating rates drop to 89.6 percent of capacity last month, down from 91.2 percent in December.

For all of manufacturing, the operating rate was unchanged at 82.4 percent of capacity. Producers of durable goods, such as steel and autos, saw operating rates decline to an average of 79.9 percent of capacity, 0.1 percentage point below the December level. Makers of non-durable goods saw operating rates rise by 0.1 percentage point to 86.1 percent of capacity.