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 A rebound in growth is, however, anticipated despite other data on
Friday showing a further erosion in consumer sentiment in early
April.
Economists say a confluence of temporary factors, including an
ongoing problem with the model the government uses to smooth the
data for seasonal fluctuations, has contributed to lowering growth
in the first quarter. The government last year took steps to refine
the seasonal adjustment for some components of GDP, which economists
said left residual seasonality in the data.
"The first quarter was clearly a dud, but there are reasons to be
optimistic. There are still measurement issues, with the residual
seasonality in GDP, and history shows that reverses in the second
quarter," said Ryan Sweet, senior economist at Moody’s Analytics in
Westchester, Pennsylvania.
Industrial output declined 0.6 percent last month after dropping 0.6
percent drop in February, the Federal Reserve said on Friday.
Industrial production has fallen in six of the last seven months.
Economists had forecast industrial output falling only 0.1 percent
last month. Industrial production fell at an annual rate of 2.2
percentin the first quarter after decreasing at a 3.3 percent pace
in the fourth quarter. Industrial capacity use in March fell to its
lowest level since August 2010.
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.
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.
In a separate report, the University of Michigan said its consumer
sentiment index fell to 89.7 early this month from a reading of 91.0
in March amid concerns that slowing economic growth would hamper job
creation.
Sentiment has declined for four straight months. Households'
long-term inflation expectations fell back to their all-time low,
which could buy a cautious Federal Reserve more time to keep
interest rates at current low levels.
"Persistently low price expectations increase the risks of monetary
policy remaining highly accommodative for longer than currently
expected," said Jesse Hurwitz, an economist at Barclays in New York.
The dollar was trading lower against a basket of currencies, while
prices for U.S. government debt rose. U.S. stocks were little
changed.
WORST LIKELY OVER
The industrial sector has been undermined by a slowingglobal economy
and robust dollar, which have eroded demandfor U.S. manufactured
goods.
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It is also being weighed down by lower oil prices that have undercut
capital investment in the energy sector, as well efforts by
businesses to reduce an inventory overhang. But there are signs the
worst of the industrial sector downturn is over, with recent
manufacturing surveys turning higher.
A third report on Friday from the New York Federal Reserve showed
factory activity in New York state accelerated in April to its
highest level in more than a year as new orders and shipments
increased.
"It is likely the inventory correction and stronger dollar continued
to weigh on the output data for the first quarter, and we remain
hopeful that the worst of the drags from these factors have passed
and that activity will pick up shortly," said Daniel Silver, an
economist at JPMorgan in New York.
Last month, manufacturing output fell 0.3 percent, the biggest
decline since February 2015, after slipping 0.1 percent in February.
Manufacturing was dragged down by motor vehicle and parts
production, which plunged 1.6 percent after rising 0.8 percent the
prior month.
For the first quarter, manufacturing output rose at a 0.6 percent
rate.
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,
when output was curtailed because of hurricanes. 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 <SLB.N> and Halliburton
<HAL.N>, leading to deep cuts in their capital spending budgets.
Unseasonably warm weather in March hurt utilities output, which fell
1.2 percent after declining 3.6 percent in February. Weak utilities
production suggests weak demand for heating, which likely hurt
consumer spending.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)
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