Output at US factories slipped in March and builders started construction on fewer homes, offering cautionary signals for an economy that appeared to be gaining traction. Manufacturing output slipped for the first time in four months, dropping 0.2 percent, the US Federal Reserve said on Tuesday.
--- Housing starts off 5.8pc, permits up 4.5pc
The decline dragged on overall industrial production which was unchanged and fell short of analysts' expectations. "It looks pretty bad on the face of it," said Tom Porcelli, an economist at RBC Capital Markets in New York. Surging exports and efforts by companies to restock their shelves have made economic growth look more solid in recent weeks.
The factory data did little to change that view, but economists said it suggested the recovery lost a little steam at the close of the first quarter, in part due to headwinds from Europe's debt crisis, which is weighing on global growth. "(It) raises the possibility that the recent easing in global demand is starting to take a toll on US manufacturers," said Paul Dales, an economist at Capital Economics in London.
Signs of a cooldown in growth became apparent earlier this month when a report showed hiring slowed sharply in March. Still, Porcelli and others said the factory sector, which has been a key driver of America's recovery from the 2007-2009 recession, appeared to have enough momentum to continue growing.
Auto production, for example, increased 0.6 percent after rising 0.8 percent in February. Also, initial estimates for manufacturing output in February were revised higher. Citing these factors, Goldman Sachs on Tuesday raised its forecast for first-quarter growth in gross domestic product to a 2.6 percent annual rate from 2.5 percent. That would be a slowdown from the 3 percent rate clocked in the fourth quarter, but still faster than many analysts expected a few weeks ago.
A separate report on new home construction also provided mixed signals. Housing starts slipped 5.8 percent in March to a seasonally adjusted annual rate of 654,000 units, the Commerce Department said. That unwinds some of the incipient recovery seen in recent months in the long-moribund US housing sector. At the same time, the data still suggests housing construction will add to gross domestic product during the first quarter, said Millan Mulraine, a macro strategist at TD Securities in New York.
Also, new permits for home construction surged to their highest level in 3-1/2 years, which could lead to more housing construction in coming months. Although many economists think homebuilding could add to economic growth this year for the first time since 2005, an oversupply of unsold homes is depressing prices, creating a big hurdle for the sector. Some analysts speculated that a mild winter in the United States led homebuilders to start new projects ahead of schedule, and that March's decline amounted to a payback.