A sharp drop in automobile production and oil-related activities pushed U.S. industrial production down 0.5 percent in March, the second monthly decline in a row, the Federal Reserve Board reported yesterday.
The fall in the industrial production index, which measures the output of the nation's factories, mines and utilities, was another sign that an expected acceleration in economic growth is not yet under way, analysts said. Most analysts had expected a drop of about 0.2 percent.
The March production decline came on the heels of a revised 0.7 percent drop in February. The drop originally was reported as 0.6 percent and attributed in part to a variety of temporary factors, including unusually bad weather in parts of the country.
The two monthly drops -- the largest back-to-back declines since the 1981-82 recession -- were widespread, the Federal Reserve said. Auto assemblies were cut to an annual rate of 7.7 million units from an 8.7 million rate in February "in response to weak sales and excessive inventories," the report said.
Plunging oil prices have so discouraged drilling activity that it fell 17 percent in March to a level one-third below that of December.
The March production figures -- and the employment data reported earlier this month on which a significant portion of the production index is based -- suggest that much of American manufacturing is at best stuck on a plateau rather than showing gains, analysts said.
Production of business equipment fell 0.9 percent following a 1.3 percent drop in February. The output of materials such as auto parts fell 0.3 percent. Production of so-called home goods -- appliances, furniture and similar items -- went down for the third month in a row after showing sizable gains in the fourth quarter of last year.
Economist Alan Greenspan of Townsend-Greenspan & Co. said that part of the weakness in industrial production is due to buinesses' reluctance to add to their inventories. "It's fairly apparent that inventory investment is running at a much slower pace than was thought earlier," Greenspan said.
He noted that, in a Commerce Department report issued earlier this week, business inventory figures were revised downward for January and then showed virtually no increase in February. "The inventory shortfall is the major factor in the industrial-production numbers being soft. But even with that in mind, the numbers are still coming in under expectations," Greenspan said.
Total business sales also are falling. The Commerce report showed combined sales by manufacturers, wholesalers and retailers dropping 0.2 percent in January and another 1.1 percent in February.
Greenspan said the evidence now available points to a rise in the gross national product for the first quarter at an annual rate of about 2 to 2 1/2 percent after adjustment for inflation. The Commerce Department's Bureau of Economic Analysis will report a preliminary figure for first-quarter GNP Thursday.
The March decline left the industrial production index for the first quarter up only 0.3 percent from the fourth quarter.
As the reports of a continued sluggish economy pile up, some analysts speculated that first-quarter growth might be even weaker. Whatever the figure, growth from December through March was slower than will be implied by the official GNP number, analysts said. That will be the case because relatively strong growth in the latter part of the fourth quarter lifted economic activity to a level above the fourth quarter's average. Since then, however, there has been little, if any, further advance, according to the analysts.
With both February and March showing no jump in activity comparable to that of November and December, no such arithmetic will be at work for the current quarter. Any gains recorded for the second quarter will be dependent upon an increase in future economic activity, these analysts said.
Many forecasters still expect the economy to pick up later in the year as a result of falling interest rates, low inflation and less competition from foreign goods for American products, the latter as a consequence of a lower value of the U.S. dollar on foreign exchange markets.