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updated: 4/16/2013 9:36 AM

Factory production in U.S. unexpectedly decreased in March

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  • Repairman Jerry Garcia works on an engine on the assembly line at the Ford Cleveland Engine Plant 1 , in Brook Park, Ohio.

      Repairman Jerry Garcia works on an engine on the assembly line at the Ford Cleveland Engine Plant 1 , in Brook Park, Ohio.
    Associated Press

 
Bloomberg News

Factory production in the U.S. unexpectedly dropped in March, adding to recent signs that manufacturing is cooling.

Output at factories fell 0.1 percent, figures from the Federal Reserve showed today in Washington, compared with 0.1 percent increase forecast in a Bloomberg survey of economists. Total industrial production, which includes manufacturing, mining and utilities, climbed 0.4 percent as colder-than-normal temperatures drove the biggest gain in electricity and natural- gas use in six years.

Output is slowing as companies try to limit inventories amid concern the world's largest economy will slow as automatic cuts in planned federal spending take effect. Manufacturers such as rail-car maker Greenbrier Cos. project an improvement in the second half of the year, a sign business investment is unlikely to retrench.

"The details look pretty weak, but that came after strength in February," said James O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, the second-best industrial production forecaster over the past two years, according to data compiled by Bloomberg. "Manufacturing will certainly continue to grow."

Stocks rose, with the benchmark Standard & Poor's 500 Index rebounding from its biggest drop since November, as housing starts and corporate earnings topped estimates. The S&P 500 climbed 0.8 percent to 1,564.19 at 9:55 a.m. in New York.

Survey Results

The median estimate for total industrial production of the 82 economists surveyed by Bloomberg called for a 0.2 percent gain. Projections ranged from a drop of 0.5 percent to an increase of 0.7 percent. The prior month was revised up to a 1.1 percent increase from a previously reported 0.8 percent advance.

Manufacturing, which makes up 75 percent of total production and accounts for about 12 percent of the economy, was restrained by declines in production last month of metals, computers, electrical equipment and furniture.

One of the bright spots in March was auto making. The output of motor vehicles and parts increased 2.9 percent after a 2 percent gain a month earlier, today's report showed. Excluding autos and parts, manufacturing production dropped 0.3 percent, the biggest decline since October, after a 0.8 percent rise.

Cars and light trucks sold at a 15.2 million annual pace in March, capping the strongest three months for purchases since early 2008, data from Ward's Automotive Group showed.

Capacity Use

Today's Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, climbed to 78.5 percent from 78.3 percent the prior month.

Utility output jumped 5.3 percent, the biggest gain since February 2007, after a 2.5 percent advance the previous month. The average temperature last month was 40.8 degrees Fahrenheit (4.9 degrees Celsius), making it the coolest March since 2002, according to the National Climatic Data Center.

Mining production, which includes oil drilling, decreased 0.2 percent.

Businesses benefiting from gains in orders include Greenbrier, a Lake Oswego, Oregon-based rail-car maker. First- half results were ahead of expectations and the company is "looking forward to a solid second half" of the year, Chief Executive Officer William Furman said in an April 4 earnings conference call.

"There is demand out there," Furman said on the teleconference. "We're pretty pleased about the quarter's momentum and the momentum going forward into the third quarter."

Housing Rebound

The rebound in housing is underpinning demand. Builders broke ground on 1.04 million houses at an annualized rate in March, the most since June 2008, a Commerce Department report showed today. The median forecast of economists surveyed by Bloomberg called for a 930,000 pace.

Caterpillar Inc., the world's largest maker of construction and mining equipment, is among businesses watching economic developments in the U.S. and overseas for signs of improvement.

"While we're encouraged by some recent improvements in economic indicators, there are still uncertainties in the world and the company is ready for any circumstances," Doug Oberhelman, chief executive officer of Peoria, Illinois-based Caterpillar, said in a statement on April 10.

The economy probably grew at a 3 percent annualized rate from January through March, according to the median forecast in a Bloomberg survey of economists from April 5 to April 9. The expansion will cool this quarter, to a 1.5 percent pace, then reaccelerate to an average 2.4 percent rate in the last six months of 2013.

--With assistance from Chris Middleton in Washington. Editor: Carlos Torres

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwelliszbloomberg.net

Company News: GBX US CN CAT US CN

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