Industrial output up 0.6 percent

By David Lawder

WASHINGTON (Reuters) – U.S. industrial production rose 0.6
percent in March, slightly more than expected, as mining and
utility output became less volatile and capacity use reached
its highest point in 5-1/2 years, the Federal Reserve said on
Friday.

The Fed said output from the nation’s mines rose 0.9
percent in March after falling 0.7 percent in February, as oil
and gas facilities continued their recovery from hurricanes
last year and coal output surged.

March utility output rose 0.5 percent after a large jump in
February due to cold temperatures followed a big decline in
January driven by warm weather. Manufacturing output also rose
0.5 percent, driven by strong gains in motor vehicles and
electronics.

Capacity utilization, a measure of how close to full
potential factories, mines and utilities are running, rose to
81.3 percent from a downwardly revised 81.0 in February,
marking its highest level since reaching 81.5 percent in
September 2000.

Wall Street analysts polled by Reuters had expected overall
March industrial production to rise 0.5 percent and capacity
use to reach 81.4 percent.

The strong numbers are likely to reinforce views among some
Federal Reserve policy-makers that tightening labor markets and
rising capacity use could create inflationary pressure. Fed
governor Donald Kohn said on Thursday the Fed is examining
economic data in a “meeting by meeting” approach on whether to
continue its rate tightening campaign to curb inflation.

“This report does not add to the case that there’s a
visible slowing in the economy. It keeps (the Fed) directly on
path to tighten in May and leaves the debate on whether they
will tighten in June certain to be a very lively one,” said
Dana Johnson, chief economist at Comerica Bank in Detroit.

“The Fed needs more evidence than they have on hand” to
take a more neutral view of interest rates, he said, adding
that he believes the slowing housing sector and higher energy
prices will cool U.S. economic growth this year.

U.S. financial markets were closed on Friday for the Good
Friday holiday.

All major sectors contributed to the March increase in
production, with the largest gains in materials and business
equipment, both of which increased 0.8 percent. Production of
construction supplies rose 0.2 percent after a 0.8 percent drop
in February.

Output of durable goods, which are meant to last three
years or more, rose 0.7 percent after being flat in February.
Motor vehicles and parts production rose 1.5 percent after a
1.1 percent fall in February, while output of computers and
electronics products jumped 1.7 percent after a 0.6 percent
gain in February.

Capacity use in the manufacturing sector rose to 80.4
percent in March from 80.2 in February, while capacity use at
mines was 87.2 percent and utilities were using 85.3 percent of
their capacity.