Washington, April 17 (Bloomberg) -- Industrial production increased in March for the firsttime in six months, suggesting the slowdown in the U.S. economy may have reachedbottom. Production at factories, mines and utilities rose 0.4 percent in March after falling everymonth since September, the Federal Reserve said. For factories alone, productionincreased 0.3 percent, also the first rise since September. Manufacturing of autos,business equipment and computer-related goods all rose. ``It looks like we've hit a turning point in the economy,'' said Diane Swonk, chiefeconomist at Bank One Corp. in Chicago. ``We've been cutting inventories like crazy andthat just sets us up for strength later in the year.'' Construction on new homes in March began at a pace that would produce more homesthan were built in all of last year, and consumer prices rose at the slowest rate in sevenmonths. Together, the three reports suggest a diminished threat to the economicexpansion, now in its 11th year. The economy grew at a 1 percent annual rate in the final three months of last year, theslowest in 5 1/2 years, and may have cooled further in the first quarter. Federal Reservepolicy makers reduced interest rates three times this year to make consumer andbusiness spending cheaper and give growth a boost.
Fed's Next Meeting
Investors expect the Fed to reduce its benchmark overnight lending rate at its next policymeeting May 20. The overnight rate, now 5 percent, may fall to 4.5 percent, according totrading in the June fed funds futures contract. Scant signs of inflation will make it easier for central bankers to reduce interest ratesagain, analysts said. The consumer price index, the most closely watched gauge of U.S.inflation, rose 0.1 percent last month after a 0.3 percent gain in February, the LaborDepartment said. The core index, which excludes energy and food, increased 0.2percent after rising 0.3 percent in February. Prices were restrained by declining costs for energy, new cars and airline fares, thefigures showed. March's production increase was led by a 7 percent jump in cars and parts, the largestrise in that group since the end of the two-month labor strike at General Motors Corp. inAugust 1998. ``Automakers cut production so dramatically in the fourth quarter that they have clearedinventories despite lower sales this year than last,'' said Chris Low, chief economist atFirst Tennessee Capital Markets Inc. in New York. ``Production isn't going to be as weakas it was unless consumers cut their auto purchases dramatically, something theyhaven't yet done.''
Excluding Autos
Excluding autos, production was unchanged in March, the first time since Septemberthat category didn't decline. Production of business equipment rose 0.9 percent, the firstincrease since November. Semiconductor production rose for the first time in twomonths. Also, the plant-use rate, which measures industrial capacity in use, rose last month forthe first time since August. When the Fed reduced the overnight interest rate by a half- percentage-point on March20, central bankers worried in a statement that factories were using less of their``productive capacity.'' In February, the plant-use rate had fallen to the lowest level sinceJanuary 1992. ``The possibility that this excess could continue for some time and the potential forweakness in global economic conditions suggest substantial risks that demand andproduction could remain soft,'' the Fed said. Stocks and U.S. Treasury securities gained. The Dow Jones Industrial Average rose 58points, or 0.6 percent, to close at 10216.86. The Nasdaq Composite Index rose 14points, or 0.7 percent, to close at 1923.20. The 10-year note rose 3/8 point, pushingdown its yield 6 basis points to 5.20 percent.
Analysts Expectations
Before today's report, analysts expected production to fall 0.1 percent in March followingFebruary's originally reported 0.6 percent decline, according to a Bloomberg Newssurvey. Manufacturing is taking the brunt of the slowdown in economic growth, and factorieshave eliminated more than 200,000 jobs so far this year, according to Labor Departmentstatistics. That pattern is likely to continue, and the unemployment rate --at 4.3 percentin March -- may rise to 5 percent by October or November, said Peter Kretzmer, aneconomist at Banc of America Securities in New York. Production of consumer goods fell 0.4 percent last month, and appliance, furniture andcarpet production fell 1 percent. Eastman Kodak Co., the biggest photography company, today announced plans to fire3,000 to 3,500 workers to reduce costs because of declining film sales. The Rochester,New York-based company plans $375 million to $450 million in charges in the secondand third quarters for the firings. The company had 78,400 workers at the end of lastyear. Motorola Inc., the No. 2 cellular-phone maker, is projecting a drop in annual revenue,reflecting slower sales of handsets and semiconductors. To stem its losses, theSchaumburg, Illinois- company plans to eliminate 4,000 jobs, bringing the cutsannounced since December to 26,000, President Robert Growney said. Motorola had147,000 employees at the end of 2000. Electric and gas utility production rose 1.1 percent last month after falling 2 percent theprevious month. Mine production and oil and gas drilling rose 0.8 percent last month afterincreasing 0.4 percent the previous month. Housing starts fell 1.3 percent in March to 1.613 million units at an annual pace, theCommerce Department said today. That follows a 1.634 million rate in February and apace of 1.671 million in January, the fastest since February 2000. While the March rate exceeds the total of 1.593 million units for all of 2000,homebuilders are expecting buyers to become cautious. ``Rising unemployment isbeginning to nip at the edges of the housing market,'' said David Orr, chief economist atFirst Union Corp. in Charlotte.