US industrial production fell 0.6% in March vs. 0.1% drop expected

A worker assembles components for a New Holland round baler at the company's Haytools factory in New Holland, Pennsylvania, April 8, 2016.
Luke Sharrett | Bloomberg | Getty Images

U.S. industrial production fell more than expected in March as output declined broadly, the latest indication that economic growth braked sharply in the first quarter.

Industrial output decreased 0.6 percent last month after a downwardly revised 0.6 percent drop in February, the Federal Reserve said on Friday. Industrial production has declined in six of the last seven months.

Economists polled by Reuters had forecast industrial production slipping 0.1 percent last month after a previously reported 0.5 percent drop in February.

Industrial production fell at an annual rate of 2.2 percent in the first quarter. The report joined data on retail sales, business spending, trade and wholesale inventories in suggesting that economic growth slowed to crawl at the turn of the year.

A worker builds a light fixture at the Roll & Hill manufacturing facility in Brooklyn, New York.
New York manufacturing expanded in April

Growth estimates for the first quarter are as low as a 0.2 percent annualized rate. The economy grew at a 1.4 percent rate in the fourth quarter. But given a buoyant labor market, the ebb in growth is likely to be temporary.

The industrial sector has been undermined by a slowing global economy and robust dollar, which have eroded demand for U.S. manufactured goods. It is also being weighed down by lower oil prices that have undercut capital investment in the energy sector, as well as an inventory correction.

But there are signs the worst of the industrial sector downturn is over, with recent manufacturing surveys turning higher. In addition, the dollar's rally has fizzled and oil prices appear to be stabilizing.

Last month, manufacturing output fell 0.3 percent, with the production of long-lasting goods declining 0.4 percent. Manufacturing was weighed down by motor vehicle and parts production, which plunged 1.6 percent after rising 0.8 percent. Manufacturing output fell 0.1 percent in February.

For the first quarter, manufacturing output rose at a 0.6 percent rate. In March, there were also decreases in the output of electronic equipment, appliances and components.

Mining production tumbled 2.9 percent as oil and gas well drilling plummeted 8.5 percent after diving 15.8 percent in February. Last month's drop in mining output was the largest since September 2008.

Mining production has declined in each of the last seven months.

A plunge in oil prices since June 2014 has hurt the profits of oil-field companies like Schlumberger and Halliburton , leading to deep cuts in their capital spending budgets.

Unseasonably warm weather in March hurt utilities production, which fell 1.2 percent after declining 3.6 percent in February. Weak utilities production could be a drag on consumer spending.

With output declining last month, industrial capacity use fell 0.5 percentage point to 74.8 percent, the lowest level since August 2010.

Officials at the Fed tend to look at capacity use as a signal of how much "slack" remains in the economy and how much room there is for growth to accelerate before it becomes inflationary.