Industrial Output Declines in March

U.S. industrial production dropped in March for a second straight month as manufacturers cut back during the war in Iraq, the Federal Reserve said Tuesday.

Production at factories, mines and utilities fell 0.5% last month after a revised 0.1% decline in February. The percentage of factories in use was the lowest in two decades. The production drop at utilities was the biggest in five years because of warmer weather.

“The run-up to the war caused businesses to put all decisions on hold,” said Jade Zelnik, chief economist at RBS Greenwich Capital. “Once all the uncertainties clear, we will see the resumption of a very gradual, sluggish up-trend.”

Economists had forecast a 0.2% drop in March industrial production, according to the median of 68 estimates.

The proportion of industrial capacity in use fell to 74.8%, the lowest in 15 months, while the factory-use component sank to 72.9%, the lowest since May 1983.

Utility production fell 4.1% last month after increasing 1.3% a month earlier, the Fed report showed. It was the biggest drop since a 4.5% decrease in January 1998.

Work at factories, which accounts for almost 90% of industrial production, fell 0.2% last month after falling 0.3% in February. Production of consumer durable goods such as automobiles, furniture and electronics decreased 0.8% after falling 1.7% the previous month.

March’s decline in output was led by a 1.8% drop in the assembly of vehicles and parts. Vehicle manufacturing fell 2.4% in February as sales slowed. Industrywide sales last quarter averaged an annual rate of 15.9 million vehicles, the weakest since the third quarter of 1998. Total inventories reached an estimated 4.01 million vehicles in March, a record for any month, according to industry statistics.

Factories cut 38,000 workers from their payrolls last month, the 32nd consecutive decline, and average number of hours worked per week held steady at 40.8.