U.S. factory decline suggests economy losing steam
Tue, Apr 17 2012

WASHINGTON (Reuters) - Output at U.S. 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 U.S. Federal Reserve said on Tuesday.

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 U.S. 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.

HOME PERMITS RISE

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 U.S. 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.

"It's going to be rocky for a while," said Gregory Miller, an
economist at Suntrust Banks in Atlanta, adding the data pointed at
best to a tentative recovery.

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.

U.S. stocks rose and government debt prices fell as investors welcomed
a slew of corporate results and as a decline in borrowing costs for
Spain eased concerns about Europe's debt crisis.

Coca-Cola Co posted higher-than-expected quarterly profits and its
chief executive said the company saw signs the U.S. economy was
improving. Goldman Sachs Group Inc said its first-quarter profit fell
from a year earlier, but the drop was milder than analysts had
expected.

The drops in factory output and housing starts will give Fed
policymakers more to chew on when they review interest rate policy
next week.

Stronger economic data has made the central bank more reluctant to
consider further monetary stimulus.

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