U.S. Factory Output Rises More Than Forecast in Broad Advance

(Bloomberg) -- U.S. factory production rose in March by more than forecast, marking the third straight month of gains that show steady progress for manufacturers against a backdrop of gradually improving supply chains.

The 0.9% increase followed a 1.2% gain in February, Federal Reserve data showed Friday. Total industrial production, which also includes mining and utility output, also rose 0.9% during the month and the gain in February was revised up. 

Manufacturing output increased at an annual rate of 5.4% in the first quarter. Total production grew an annualized 8.1%, the strongest since the end of 2020.

Capacity utilization at factories rose to 78.7%, the highest since 2007, from 78.1% a month earlier. The pickup in the rate, which has climbed almost 18 percentage points since the April 2020 low, shows manufacturers are having more success filling open positions that will allow firms to make progress on backlogs.

Still-firm orders growth, helped by solid business investment, remains a source of strength for domestic producers. A sharp pickup in motor vehicle assemblies shows stresses in supply chains continue to abate. 

At the same time, soaring materials costs continue to complicate the industrial recovery. Progress on supply chains may also be limited in part by Russia’s war in Ukraine and strict pandemic-related lockdowns in areas of China represent new risks.

“Industrial production growth will stay upbeat even though the recovery has already tilted away from favoring goods demand,” Oren Klachkin, lead U.S. economist at Oxford Economics, said in a note. “Businesses continue to invest despite the spike in geopolitical risks and economic uncertainty.”

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The pickup in March manufacturing output was broad and included a 7.8% surge in production of motor vehicles. Assemblies rose to an annualized 9.75 million units, the most since January of last year. Excluding autos and parts, factory output increased 0.4%.

The report also showed output of business equipment jumped 1.8% in March, matching the prior month’s gain and indicating companies still have confidence in the economy’s prospects.

Machinery, electrical equipment and appliances, aerospace and wood products makers were among other manufacturing categories showing production gains. Non-durable goods output was boosted by increases in petroleum, chemicals and plastics.

The Fed’s report showed a 0.4% increase in utility output and a 1.7% gain in mining. Oil and gas well drilling advanced another 4.8% and was up 53.7% from a year earlier.

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