04/18/2017

U.S. factory output fell unexpectedly in March, charting its biggest decline in seven months as auto production contracted in a check on the manufacturing sector's expansion.

The Federal Reserve said on Tuesday manufacturing production dropped 0.4 percent last month. February's output was revised down to show a 0.3 percent gain instead of the previously reported 0.5 percent increase.

Analysts had expected a 0.1 percent increase in factory output in March. Still, smoothing out monthly volatility, factory production rose at a 2.7 percent annual rate in the first quarter.

Despite the sharp decline in manufacturing output last month, overall industrial production rose 0.5 percent because of an 8.6 percent weather-driven surge in utilities generation.

That was the largest increase in utilities output on record, which resulted from heating demand returning to seasonal norms after being suppressed by unusually warm weather in February, the Fed said.

Mining output increased 0.1 percent last month, lifted by gains in oil and gas extraction.

Manufacturing, which accounts for about 12 percent of the U.S. economy, had been regaining ground as the prolonged drag from lower oil prices, a strong dollar and an inventory overhang faded. The sector has benefited from an improvement in business sentiment amid promises by the Trump administration to pursue business-friendly policies, including tax cuts and deregulation.

Last month, manufacturing output was dragged lower by a 3.0 percent plunge in the production of motor vehicle and parts. Machinery output fell 0.5 percent.

Manufacturing capacity utilization, which measures how fully factories are deploying their resources, dropped 0.3 percentage point to 75.3 percent last month.

Overall industrial capacity utilization rose 0.4 percentage point to 76.1 percent.

Reuters (Reporting by Jason Lange; Editing by Paul Simao)