New home starts in the United States took a hit in March, while industrial production was up sharply and consumer prices posted a modest gain.

Tuesday the Federal Reserve reported the total output at the nation’s factories, mines and utilities moved up 0.7%, the biggest gain since May 2000. The increase was the third consecutive upturn in this sector, which has been the hardest hit during the economic recession. For the first quarter of the year, overall output is up 2.5% and is the first quarterly increase since the third quarter of 2000.
Factory output, which makes up the largest proportion of total output, increased 0.8%, registering its strongest performance since March 2000.
The federal government also revised downward February’s 0.3% increase from the initially reported 0.4% advance. January's gain was revised upward to 0.5% from the previously reported 0.2% upturn.
Production capacity also jumped in March to 75.4% from February's 74.9%, the highest level since last September. Both the production capacity and the total output figure beat analysts' predictions.
Newport Communications Senior Economist Jim Haughey says this sudden surge can only be due to exhaustion of the surplus inventory in most industries.
“Workers were called back to boost production when orders could not any longer be filled from inventory,” he says. “It is unlikely that the whole transition took place in March. So another month or two of above average production gains is likely.”
He notes a few industries have yet to exhaust inventory. so their output will also surge in the next few months. Haughey says this includes telecom equipment. where production was 22.1% below last March; aerospace, which is down 15.4%; and industrial machinery, which is lagging 9.1%.
Meantime on Tuesday the U.S. Commerce Department reported new home starts fell 7.8% during March, the biggest decline in two years.
New home construction fell from an annual rate of 1.646 million units from an upwardly revised 1.785 million unit rate seen in February.
The biggest drop was in the area of single family homes, which fell 11.4%, the biggest drop since January 1994. Meantime a future indicator of new home construction, building permits, fell by 9.9%, the largest drop since February 1990.
Starts fell by 12.9% in the South and by 6.2% in the West, the two biggest regions for home building. New homes construction fell by 7% in the Midwest but rose 15.5% in the Northeast.
“Further declines to 1.6 million or slightly less are likely in the spring due to so many new home started early during the winter,” says Haughey.
“A 1.6 to 1.65 million annual rate of starts is approximately equal to the underlying demographic demand for additional housing plus tear-downs and abandonments. So this pace should be sustained in the next few years in a strong economy,” he says.
Also on Tuesday, the Labor Department reported consumer prices increased 0.3% in March despite a big upturn in energy prices.
The increase in the Consumer Price Index follow a 0.2% increase the month before.
Excluding the volatile food and energy sectors, the CPI posted just a 0.1% increase, down from a 0.3 percent jump in February. Energy prices rose 3.8%, the biggest increase since a 3.9% rise since May 2001.