American factories operating near record low utilization

Most Americans likely assume this empirical fact.

American factories operating near record low utilization

By Andrea Orr

The U.S. manufacturing sector has been hit hard in the latest economic downturn, but has also suffered a steady decline for the past decade. The Figure [below] tracks capacity utilization, or the share of manufacturing capacity in use, since 1973. Capacity utilization measures the difference between how much the country’s manufacturing sector is producing and how much it could be producing. In December 2007 at the start of the recession, capacity utilization stood at 80.6%. By June of 2009 it had fallen to 68.2% and today it is at 72.6%.

It is important to note that optimal capacity is not 100%, since that would require all factories to be running flat-out, day and night, with no time to conduct maintenance and no room to increase production to meet a surge in orders. However, today’s utilization levels are near all-time lows.  Although it has rebounded slightly from the record low of 68.2% in June of 2009, utilization today remains only slightly above the previous record low of 70.9% reached in 1982. Because manufacturing jobs usually pay higher wages than jobs in the service sector, factory workers who lose their jobs are often unable to find comparably-paying work elsewhere.

For more historical data on the U.S. manufacturing sector, visit EPI’s Economy Track.