Manufacturing Struggles With U.S. Dollar Rising, Oil Falling

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American factories produced more cars in March and little else as a strong dollar hampered exports and the plunge in oil prices cut into spending on new equipment.

The 0.1 percent gain in manufacturing output marked the first advance in four months and followed a 0.2 percent February decrease, according to Federal Reserve data issued Wednesday in Washington. Total industrial production dropped more than forecast. Other reports showed homebuilders gained confidence at the start of the second quarter, while factories in New York struggled.

Manufacturing, which accounts for about 12 percent of the economy, will probably remain subdued as the effects of the dollar and fuel costs linger, even as the supply disruptions caused by the labor dispute at West Coast ports and harsh winter weather dissipate. That’s one reason economists predict Fed policy makers will be in no rush to raise interest rates.

“The dollar is a wet blanket on manufacturing,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “If the dollar remains this strong, we’re going to have headwinds for manufacturing for a while.”

Stocks advanced as Intel Corp. climbed and energy companies rallied with oil reaching a 2015 high. The Standard & Poor’s 500 Index rose 0.5 percent to 2,106.63 at the close in New York.

Housing Rebound

Another report showed housing may take up some of the slack. The National Association of Home Builders/Wells Fargo sentiment gauge increased to 56 in April, the highest since January, from 52 the previous month, the Washington-based group reported. Readings greater than 50 mean more respondents said conditions were good.

Warmer weather is encouraging builders to start work on more homes at a time when tight inventory has been pushing up housing prices. Sustained improvement in the job market and a long-awaited pickup in wage growth would help to further strengthen demand.

“As the spring buying season gets under way, homebuilders are confident that current low interest rates and continued job growth will draw consumers to the market,” NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Missouri, said in a statement.

The Fed’s report on factory output showed total industrial production, which also includes utilities and mining, declined 0.6 percent, the biggest drop since August 2012. It was projected to fall 0.3 percent, according to the Bloomberg survey of 83 economists. Estimates ranged from a drop of 0.9 percent to a 0.6 percent gain.

Utility Use

Utility output fell 5.9 percent, the biggest decrease since January 2006, after jumping 5.7 percent the previous month.

More seasonable weather in March followed plummeting temperatures, limiting demand for utilities.

Mining production, which includes oil drilling, decreased 0.7 percent in March, the third consecutive decline. Oil and gas well drilling plunged at almost a 70 percent annualized rate last quarter, according to the figures.

Manufacturing production, which makes up about 75 percent of the total, slumped at a 1.2 percent annual rate in the first three months of the year, the biggest drop since the second quarter of 2009, just as the recession was ending.

Machinery production was little changed last month and construction materials dropped 0.9 percent, the report showed.

Regional figures showed there was little reprieve at the start of the second quarter. The New York Fed’s Empire State index showed manufacturing in the state unexpectedly shrank this month as orders slumped at the fastest pace in two years.

Auto Production

Nationally, the output of motor vehicles and parts increased 3.2 percent in March after dropping 3.6 percent a month earlier, the Fed’s report showed. Excluding autos and parts, factory production declined 0.1 percent after being little changed in February.

Vehicle demand remains a mainstay for factories. Purchases of cars and light trucks rose to a 17.1 million annualized rate in March from 16.2 million a month earlier, according to Ward’s Automotive Group. Korean automakers posted unexpected increases while sales fell at Ford Motor Co. and General Motors Co.

“Growth in the manufacturing sector is steady but it’s being impacted by a variety of factors, both positive and negative,” Emily Kolinski Morris, Ford’s chief economist, said on an April 1 sales call. “We expect a firming labor market and still low fuel prices and interest rates to support renewed momentum in economic activity as spring takes hold.”

Fed Outlook

A spate of disappointing data in recent weeks has persuaded more economists that the Fed will hold off raising its benchmark interest rate. Most now project the central bank will increase the rate in September rather than in June.

The second half of the year “is going to be better, but the longer this drags on, the more it’s going to put question marks in certainly the market’s mind and the Fed’s mind,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “That’s why a lot of people pushed their lift-off back to September from June. We did.”

Labor-market progress and cheap gasoline are helping to underpin household spending, which accounts for about 70 percent of the economy. While payrolls rose by a less-than-forecast 126,000 workers in March, the gain followed a 12-month streak of increases of 200,000 or more.

Sales at retailers rose less than forecast in March after being depressed by harsh winter weather in February, Commerce Department data showed Tuesday. Demand climbed in nine of 13 major retail categories.

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