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Output from industry rises 0.3% in March

But analysts worry that energy prices could cause another economic "soft patch."

WASHINGTON - Output at the nation's factories, mines and utilities rose by 0.3 percent in March despite the first decline in manufacturing in six months.

The Federal Reserve said Friday the increase in industrial production followed gains of 0.2 percent in February and no change in January. It was the best showing since an 0.8 percent jump in December.

Much of the strength came from a 0.7 percent rise in output at the nation's utilities, reflecting colder weather in March. Production at factories edged down 0.1 percent last month as auto plants cut back on production, the first factory decline since September.

Analysts said that could reflect growing worries that rising energy prices could produce another economic "soft patch," repeating the slowdown that occurred in the spring of last year.

"Consumer goods manufacturing took a holiday in March and if household spending slows further, the vacation period could become pronounced," said Joel Naroff, chief economist at Naroff Economic Advisors.

Analysts noted that the University of Michigan survey of consumer sentiment on Friday slipped to 88.7 in April, the lowest reading in 17 months. The decline was attributed in part to the latest surge in oil prices.

Wall Street extended its selloff as investors worried about the weak industrial production report and a report showing that import prices jumped by 1.8 percent. That was the largest one-month gain in more than a year, and it raised new fears about the effect high oil prices will have on the economy.

The Dow Jones industrial average dropped nearly 200 points Friday.

Federal Reserve board member Donald Kohn said in a speech Thursday that while last year's energy price gains had a limited affect on dampening spending, the "persistence of higher prices may have a cumulating effect on spending."

He said the early effects of that could be showing up in retail sales, which rose a disappointing 0.3 percent in March, less than half what analysts had been expecting.

The 0.1 percent drop in factory output in March followed two months of 0.3 percent gains. The mining sector, which includes oil production, boosted its output by 0.7 percent in March, compared with a 0.4 percent increase in February.

Utility production, spurred by a return to colder weather in March, was up 3.6 percent after two months of declines.

The increase in overall industrial output in March left factories, mines and utilities operating at 79.4 percent of capacity, up slightly from 79.3 percent in February.

[Last modified April 16, 2005, 02:45:13]