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Manufacturing Capacity Utilization is on a Steady 40 Year Decline. Will This Recovery Buck the Trend?

“Geoff Forester photograph, courtesy of the New Hampshire Community Loan Fund”.

In looking at manufacturing capacity utilization trends over the past forty years, a sobering realization emerges. As expected, capacity drops during a recession. But for each recession, the ensuing recovery brings manufacturing to a capacity level lower or no greater than the peak preceding the recession. This trend continues, recession after recession. From a high of 89% back in January of 1967, capacity utilization is now at about 75%. In the last ten years, the highest it’s been is about 82%, in November of 2007. At the bottom of the current recession, capacity was about 68%, the lowest in the past forty years.

A very high capacity utilization rate can fuel inflation and lead to late orders and lack of agility; it is not necessarily a good thing.  Surprisingly, a low utilization rate can be beneficial. Companies can be more responsive and agile to demand because they have the excess capacity available. However, this works only if you recognize the opportunity and have the means to put the capacity to use – cash for growth and skilled labor to run the capacity. For many small manufacturers, both are currently in short supply.

It will be interesting to see if US manufacturing can use the current low utilization rate to increase market share and improve agility. If it can, it will be bucking the trend of the last forty years. Such a reversal of the past would indicate that manufacturers are wisely looking at their market opportunities  and manufacturing abilities, not just blindly playing a numbers game of cost reduction and capacity abandonment.

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Taking Innovative Casting Technology to Your Bottom Line™

Graphicast Inc.

PO Box 430 36 Knight Street,
Jaffrey, NH 03452
phone: 603-532-4481
fax: 603-532-4261