WASHINGTON, April 16 (Reuters) - U.S. factory production unexpectedly fell in March after two straight months of solid gains, weighed down by decreases in the output of motor vehicles and a range of other goods.
Manufacturing output dipped 0.1% last month after an upwardly revised 0.4% increase in February, the Federal Reserve said on Thursday. Economists polled by Reuters had forecast production at factories would gain 0.1% after a previously reported 0.2% rise in February.
Production at factories
advanced 0.5% on a year-over-year basis in March. It grew at a 3.0% annualized rate in the first quarter, rebounding from the fourth quarter's 3.2% pace of decline.
Manufacturing, which accounts for 10.1% of the economy, showed signs of recovery after being hammered by President Donald Trump's import tariffs. But the U.S.-Israeli war with Iran has sent oil prices surging by more than 35%, which could stifle the recovery.
The Fed's "Beige Book" report on Wednesday noted that the conflict "was cited as a major source of uncertainty that complicated decision-making around hiring, pricing and capital investment, with many firms adopting a wait-and-see posture."
Motor vehicle production dropped 3.7% after increasing 2.6% in February. There were decreases in the output of primary metals, machinery as well as furniture and related products. The production of durable goods fell 0.2%. Output of nondurable manufactured goods edged down 0.1%, though production of petroleum and coal as well as plastics and rubber products rose.
Mining output declined 1.2% after rebounding 2.1% in February. Energy production fell 1.6%, with oil and gas well drilling decreasing 2.4%.
The Beige Book noted that though activity in the energy sector rose slightly in early April, "many producers remained cautious about increasing drilling due to uncertainty about the persistence of higher prices."
Utilities production dropped 2.3% as demand for heating declined. Utilities production increased 1.8% in February. Overall industrial production dropped 0.5% after an upwardly revised 0.7% increase in February. Industrial output was previously reported to have gained 0.2%.
It rose 0.7% on a year-over-year basis in March and grew at a 2.4% rate in the first quarter.
Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, eased to 75.7% from 76.1% in February. It is 3.7 percentage points below its 1972–2025 average. The operating rate for the manufacturing sector fell 0.2 percentage point to 75.3%. It is 2.9 percentage points below its long-run average.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
