Growth in industrial output surprised experts in March Housing data also point to economy's expansion

April 17, 1997|By BLOOMBERG NEWS

WASHINGTON -- U.S. industrial production grew faster than expected in March, while housing starts remained near an eight-year high, reports showed yesterday in signs that the economy continues to expand at a vigorous pace.

Output at factories, mines and utilities increased 0.9 percent last month -- the biggest gain since April 1996 -- led by production of big-ticket goods such as home appliances, furniture, computers and autos, the Federal Reserve said.

Following February's 0.6 percent increase, factory output grew at a 5.6 percent annual rate in the first quarter, up from the fourth quarter's 4.5 percent.

"It's a red flag for the Fed," said Diane Swonk, an economist at First Chicago NBD. "It's one more piece of evidence the economy is strong, that we got more than 4 percent [gross domestic product] growth in the first quarter," she said.

Highlighting that point, a separate report yesterday showed that the rate of new housing starts remained strong in March -- though they were slower than in February when unseasonably mild weather prompted a surge in construction.

March housing starts declined 6.4 percent to an annual rate of 1.425 million after rising 10.7 percent the month before, the Commerce Department said. The March pace is just below the 1.474 million pace averaged for all of last year -- the highest rate since 1988.

In financial markets, the Treasury's two-year note fell, pushing up its yield 2 basis points to 6.46 percent. The benchmark 30-year bond fell in early trading and then recovered its losses to be little changed, yielding 7.09 percent.

The Dow Jones industrial average rose 92.71 points to close at 6,679.87. However, the Nasdaq composite index finished the day with a loss of 2.61 points.

Providing evidence of little slowdown in demand, the plant-use rate, which measures the amount of industrial capacity in use, hit a two-year high in March. Plant use increased to 84.1 percent last month -- the highest level since March 1995 -- from 83.6 percent in February.

Strength in production of big-ticket items, such as home appliances and computers, "underscores the true momentum within the manufacturing sector," said Anthony Chan, chief economist at Banc One Investment Advisers Corp. in Columbus, Ohio.

Pub Date: 4/17/97

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