April 16 (Bloomberg) -- The U.S. housing implosion worsened in March, while manufacturing stabilized and a stagnant economy limited the ability of companies to pass higher food and energy costs on to consumers.

Work began on 947,000 homes at an annual rate, the fewest since March 1991, the Commerce Department said today in Washington. Industrial production gained 0.3 percent in the month, according to the Federal Reserve, and the Labor Department reported that consumer prices rose 0.3 percent, matching economists' forecasts.

While foreclosures are pushing down property values and undermining construction, record exports have kept factories running to help make up for the damage. Stocks advanced after earnings from Intel Corp., JPMorgan Chase & Co. and Coca-Cola Co. eased concern that the economic slowdown is dragging down profits.

``The economy is slow, but it's not plummeting,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. ``Housing is accounting for most of the slowdown. The slow pace of activity is helping to keep the rate of inflation'' from climbing further, he said.

Building permits, a gauge of future construction, fell to a 927,000 rate from 984,000 the prior month.

Housing starts, which dropped 11.9 percent, were projected to decline 5.2 percent to a 1.01 million pace from an originally reported 1.065 million rate in February, according to the median forecast in a Bloomberg survey of 72 economists.

Homebuilding Outlook

``Home construction is probably going to continue to fall right through this year,'' Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. ``While we see a bottoming in sales in 2008, we really don't see an improvement until later 2009, early 2010'' in home building.

JPMorgan Chase & Co., the third-biggest U.S. bank, today reported a 50 percent drop in first-quarter profit after $5.1 billion of writedowns and provisions, and said the credit-market crisis is almost over.

``It's hard in almost all these mortgage areas to say exactly what's going to happen with behavior,'' said JPMorgan Chase's Chief Executive Officer Jamie Dimon. ``What's going to happen to home prices? We expect they're going to go down another 7, 8, 9 percent in '08.''

Production Revisions

The increase in industrial production followed a revised 0.7 percent drop in February that was larger than previously reported, the Fed said. Capacity utilization, which measures the proportion of plants in use, rose to 80.5 percent.

Cooler temperatures in March boosted utility output, while demand from overseas may have helped U.S. factories offset declining domestic orders. A measure of manufacturing in the New York region yesterday showed an unexpected increase this month.

Economists forecast industrial production to fall 0.1 percent after an originally reported 0.5 percent decrease for February. Capacity utilization was forecast to decline to 80.3 percent, from a previously reported 80.4 percent.

The increase in the consumer price index followed no change the prior month, the Labor Department said. So-called core prices, which exclude food and energy, increased 0.2 percent, also after no change. Both readings matched median forecasts in a Bloomberg survey of economists.

Less Spending

Higher prices, combined with falling home values and mounting job losses, is leading to cutbacks in consumer spending that may push the economy into a deeper recession. Fed officials anticipate that the weakening economy will pull down the inflation rate.

``Economic conditions have weakened since the last report,'' the central bank said today in its regional business survey, known as the Beige Book for the color of its cover. ``Nine Districts noted slowing in the pace of economic activity, while the remaining'' three ``described activity as mixed or steady.''

The Beige Book is part of a package of analysis and data that will be used by Fed policy makers as they decide on interest rates at their two-day meeting April 29-30.

``Their primary focus has to be on the downside risk to growth,'' said Brian Bethune, director of financial economics at Global Insight Inc., in Lexington, Massachusetts. ``There is very little ability for companies to pass on price increases.''

12-Month Changes

Prices rose 4 percent in the 12 months to March, the same as the year-over-year gain in February. The core rate increased 2.4 percent from March 2007, after a 2.3 percent year-over-year increase the prior month.

Today's report showed energy expenses jumped 1.9 percent, the most since November, after a decrease of 0.5 percent the prior month. Gasoline prices rose 1.3 percent, fuel oil costs jumped 10.1 percent and natural gas prices were up 4.6 percent.

Energy costs continue to climb this month. Crude oil yesterday topped $114 a barrel, the highest since futures began trading on the on the New York Mercantile Exchange in 1983. The average cost of regular gasoline, which rose to $3.40 yesterday, is about 55 cents higher than a year earlier, according to AAA.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

Home Construction

Work on single-family homes decreased 5.7 percent to a 680,000 pace, Commerce said. Construction of multifamily homes, such as townhouses and apartment buildings, fell 25 percent to an annual rate of 267,000 in March.

Starts dropped in all four regions, led by a 21 percent slump in the Midwest.

Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline last year that was the biggest since 1980.

The National Association of Home Builders yesterday forecast housing starts would fall 30 percent this year, compared with a previously estimated 27 percent drop, as the credit crisis persists.

``It's now clear that we have entered what we anticipate will be a mild recession,'' David Seiders, chief economist for the homebuilders' group, said in a statement.

KB Home, the fifth-largest U.S. homebuilder, last month reported a wider loss than analysts projected as the housing recession cut sales and led to land writedowns.

``Many potential buyers either cannot or will not make a purchase commitment today,'' Chief Executive Officer Jeffrey Mezger said on a conference call March 28. ``Many are simply unable to qualify for financing given the more restrictive lending environment.''

Economists surveyed by Bloomberg this month forecast the economy will not grow at all in the first half of the year, the weakest performance since the 2001 downturn.

Investors project the central bank will lower the benchmark rate by at least a quarter point later this month.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: April 16, 2008 16:24 EDT