(Corrects month in second paragraph to February from January)
WASHINGTON (Reuters) - Production at U.S. factories fell more than expected in March, but eked out a modest gain in the first quarter.
Manufacturing output dropped 0.5% last month, the Federal Reserve said on Friday. Data for February was revised higher to show production at factories increasing 0.6% instead of edging up 0.1% as previously reported.
Economists polled by Reuters had forecast production would dip 0.1%. Output decreased 1.1% on a year-on-year basis in March.
Manufacturing output rose at a 0.3% annualized rate in the first quarter after declining at a 3.1% pace in the October-December period. The modest growth in production last quarter is at odds with surveys that have suggested that manufacturing was in deep recession.
Manufacturing, which accounts for 11.3% of the U.S. economy, is struggling as higher interest rates undercut demand for goods, which are typically bought on credit.
Spending is also shifting from goods to services. Businesses are holding excess inventory as demand slows, reducing the incentive to place more orders with factories.
The Institute for Supply Management's measure of national manufacturing activity has contracted for five straight months, with all its subcomponents falling below the 50 threshold in March for the first time since 2009.
Last month, durable manufacturing output fell 0.9%, with producers of long-lasting goods posting declines. Output of nondurable goods slipped 0.1%.
Mining output fell 0.5% after dropping 1.0% in February. Utilities production surged 8.4% after dropping 0.7% in the prior month. The sharp rebound in utilities offset the declines in manufacturing and mining, lifting overall industrial production by 0.4% last month.
Industrial output gained 0.2% in February. Industrial production grew at a 0.2% rate in the first quarter after contracting at a 2.5% rate in the fourth quarter.
Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, fell 0.5 percentage point to 78.1% in March. It is 0.1 percentage point below its long-run average.
Overall capacity use for the industrial sector rose to 79.8% from 79.6% in February. It is 0.1 percentage points above its 1972-2022 average.
(This story has been corrected to fix month to February, not January, in paragraph 2)