WASHINGTON- Production at U.S. factories rebounded in March amid strengthening domestic demand, with output of motor vehicles rising despite a global semiconductor chip shortage that has forced some automakers to cut production.
Manufacturing production jumped 2.7% last month after declining 3.7% in February, the Federal Reserve said on Thursday. Manufacturing production remains slightly below its pre-pandemic level.
Economists polled by Reuters had forecast manufacturing output increasing 4.0% in March. Production at factories rose at a 1.9% annualized rate in the first quarter after accelerating at a 12.4% pace in the October-December period.
Massive fiscal stimulus is fueling demand for goods amid lean inventories, underpinning manufacturing, which accounts for 11.9% of the U.S. economy.
But the shift in demand from services during the COVID-19 pandemic has caused supply constraints across the industry. The Institute for Supply Management said this month "suppliers continue to struggle to meet increasing rates of demand."
Supply constraints are more acute in the auto sector. Last week, General Motors Co and Ford Motor Co announced further vehicle production cuts because of the chip shortage.
Production at auto plants rebounded 2.8% in March after decreasing 10% in February.
The strength in manufacturing output combined with a 5.7% rebound in mining to boost industrial production by 1.4% last month. That followed a 2.6% drop in February. Utilities production fell 11.4% as temperatures warmed up.
Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, rose 1.9 percentage points to 73.8% in March.
Overall capacity use for the industrial sector increased 1.0 percentage point to 74.4% in March. It is 5.2 percentage points below its 1972-2020 average.
Officials at the Fed tend to look at capacity use measures for signals of how much "slack" remains in the economy — how far growth has room to run before it becomes inflationary.
(Reporting by Lucia Mutikani Editing by Chizu Nomiyama) ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: email@example.com))