WASHINGTON—U.S. industrial output rose in March and a measure of industry slack diminished, signs of underlying strength in the economy as factories increased production of business equipment and autos.
Industrial production—including output at factories, mines and utilities—rose a seasonally adjusted 0.5% in March from the prior month, the Federal Reserve said Tuesday. That exceeded economists’ expectations for a 0.4% increase. February industrial production was revised to a 1% gain.
Capacity utilization, a measure of slack in the industrial economy, increased 0.3 percentage point to 78%, the highest level in three years. Higher utilization rates mean diminished slack in the sector; diminished slack, in turn, could lead to inflation pressure.
Economists had expected capacity utilization of 77.9% in March.
Production of durable consumer goods increased 0.9% from the prior month, driven by a 2.7% increase in automotive production. In a sign that companies are continuing to invest in new equipment in the wake of last year’s tax law, production of business equipment rose 0.5% from February.
Larry Patterson, owner of two Dallas-Fort Worth, Texas-based locations under Dwyer Group’s Glass Doctor franchise, expects the tax cuts passed in late 2017 to reduce his tax bill this year by $70,000 to $100,000.
“Instead of reserving that, I’m able to take that and deploy it” toward a new showroom and machinery, he said.
Overall manufacturing output, the biggest component of industrial production, rose 0.1% in March from the prior month, softening from February when it increased 1.5%. U.S. manufacturing activity picked up steam over the past year because of a weaker dollar and stronger global economic growth. From March 2017, manufacturing output rose 3%.
“The monthly numbers have been choppy so far this year, but the underlying picture seems fine,” Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note to clients.
A separate gauge of U.S. manufacturing activity produced by the Institute for Supply Management was 59.3 in March, pulling back after hitting its highest level since 2004 the prior month, the group said in early April. Most components of the factory-activity report moved lower, though raw-material prices continued to climb.
Utility output aided March’s increase in industrial production, rising 3% from the prior month after it declined 5% in February due to unseasonably warm temperatures that reduced demand for heating.
Tuesday’s report from the Fed showed output in the volatile mining sector increased for the second-straight month in March. The mining index, which includes oil and natural gas extraction, rose 1% on the month and was up 10.8% from a year earlier.
From a year earlier, industrial production rose 4.3% in March.