Capacity Utilization Reaches Highest Rate in Four Years

Annual growth in durable goods capacity utilization reached 2.1 percent in December, accelerating for the seventh consecutive month to its fastest rate since March 2015.

Durable goods capacity utilization was 77.5 percent in December 2018, which was the fifth month in a row with a rate greater than 76 percent, in addition to being the highest rate of durable goods capacity utilization in four years. Virtually the entire second half of the year was revised higher. That’s good news for capital equipment consumption.

December’s one-month rate of change was 3.9 percent, which was the fastest rate of growth since July 2014. Annual growth in durable-goods capacity utilization reached 2.1 percent, accelerating for the seventh-consecutive month to its fastest rate since March 2015. Again, that’s good news for capital equipment consumption. The annual rate of growth in durable-goods capacity utilization tends to lead capital equipment consumption by seven to 10 months.

However, there are signs that durable-goods capacity utilization will reach its peak rate of growth soon. The GBI: Metalworking backlog index – an excellent leading indicator of durable-goods capacity utilization – indicates a peak is coming in the new year as the annual rate of growth in backlogs tends to lead the annual rate of growth in capacity utilization by seven to 10 months.

Note in the chart above that the last two times the growth rate in backlogs decelerated and crossed under the rate of growth in capacity utilization, the rate of growth in capacity utilization peaked in the next couple of months.

Therefore, we should expect peak growth in capacity utilization in the first quarter of 2019. Based on the historic correlations, we should expect peak growth in capital equipment consumption in the second half of 2019.

Accelerating Growth: automotive, durable goods, electronics/computers/telecommunications, forming/fabricating, primary metals, textiles/clothing/leather goods

Decelerating Growth: construction materials, food/beverage processing, machinery/equipment, petrochemical processors

Accelerating Contraction: custom processors, plastics/rubber product, printing, wood/paper products 

Decelerating Contraction: aerospace, furniture

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