NEW YORK – U.S. industrial production unexpectedly dropped in March while consumer sentiment slipped this month, but economists downplayed the two disappointing reports and said the economy’s solid expansion remains on track.
Strong data this week on regional factory output and retail sales have boosted forecasts for overall economic growth in the first half of the year. Some economists are now looking for gross domestic product of about 5 percent, up from the 4.1 percent pace in the fourth-quarter last year.
Yet Federal Reserve officials have sought to downplay worries they will be eager to lift official interest rates from 46-year lows in response, even with a surprising jump in consumer price inflation in March.
Richmond Federal Reserve Bank President Alfred Broaddus reinforced that message, saying the central bank was “some distance” from tightening monetary policy to choke off a future inflation threat. Broaddus also said he wanted “more confirmation” economic growth would be sustained.
Industrial production dipped 0.2 percent in March. Most of the fall came at utilities due to “unseasonably warm weather,” the Fed said. That was bellow forecasts for a 0.3 percent rise but followed a big 0.8 percent gain in February.
Excluding utilities, factory output was flat on the month. Economists said the reports of blistering regional factory growth meant gains in national production in coming months. Even with the March decline, industrial production in the first quarter grew by 6.6 percent, the largest since the second quarter of 2000.
“If anything, today’s report should be viewed as a month of consolidation in industrial production, with further gains expected in the coming months,” economists at Economy.com said in a report.
Capacity utilization, a key indicator of how much of the country’s production resources are being used, slipped to 76.5 percent in March from 76.7 percent and remained well below its 30-year average of roughly 81 percent.
But the warm weather provided a boon to the housing market, with new starts posting the biggest monthly gain in March since May 2003. A big drop in mortgage rates also spurred housing during March.
Homebuilders broke ground at a seasonally adjusted rate of 2.007 million units last month, a 6.4-percent climb from a revised 1.887 million pace in February, the Commerce Department said. Analysts polled by Reuters were expecting a more modest 1.900 million unit clip.
Building permits, an indication of builder confidence, also jumped more than expected in anticipation that still-low mortgage rates would keep luring buyers.
Permits climbed to a seasonally adjusted annual rate of 1.946 million units in March, up 1.9 percent from 1.909 million in the previous month. Wall Street had anticipated permits would be essentially unchanged at a 1.910 million pace.
Even with the recent rise in rates, an April survey of homebuilders released Thursday showed many were confident that demand would continue to be robust in coming months.
Yet some economists warned that with the rise in rates, the hot housing market will cool from its current boom. In the past month, 30-year mortgage rates have risen to 5.89 percent from a low of 5.38 percent, according to Freddie Mac.
“As the economy and employment prospects improve throughout the year, housing is likely to stay strong, but the frenetic pace of last year will be difficult to match,” economist Gina Martin at Wachovia Securities said in a note to clients.
In a third report on Friday, the University of Michigan said its preliminary index of consumer sentiment in April dipped to 93.2 from 95.8 in March, as persistent worries about jobs gnawed at Americans despite the good news of renewed hiring.
The escalation of violence in Iraq in recent weeks and the sharp rise in gasoline prices may have also dealt a blow to confidence, economists said.
Source: Reuters