Growth in Capacity Utilization Reacts to Backlogs

Annual growth in durable-goods capacity utilization decelerated to 2.2 percent, ending a streak of eight-straight months of accelerating growth.

One month after growing at its fastest rate in six years, growth in durable goods capacity utilization seems to be slowing. In February, durable goods capacity utilization was 76.1 percent , which was the seventh month in a row with a rate greater than 76 percent. However, compared with one year ago, capacity utilization increased just 1.0 percent, making February the second consecutive month of decelerating growth.

Annual growth in durable-goods capacity utilization decelerated to 2.2 percent, ending a streak of eight-straight months of accelerating growth. The annual rate of growth in durable-goods capacity utilization tends to lead capital equipment consumption by seven to 10 months. Therefore, this indicator alone is signaling that capital equipment consumption will peak later this summer.

The GBI: Metalworking backlog index – an excellent leading indicator of capacity utilization in durable goods – indicates a peak in capacity utilization may have arrived as the annual rate of growth in backlogs peaked in October 2017. The backlog index tends to lead the annual rate of growth in capacity utilization by seven-to-10 months. Note in the chart 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.

Accelerating Growth: aerospace, electronics/computers/telecommunications, primary metals

Decelerating Growth: automotive, durable goods, forming/fabricating, machinery/equipment, petrochemical processors, textiles/clothing/leather goods

Accelerating Contraction: construction materials, custom processors, food/beverage processing, plastics/rubber product, printing, wood/paper products 

Decelerating Contraction: furniture

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