March housing starts, factory output drop

Output at U.S. factories slipped in March and builders started construction on fewer homes, offering cautionary signals for an economy that appeared to be gaining traction.

Manufacturing output slipped for the first time in four months, dropping 0.2 percent, the U.S. Federal Reserve said Tuesday.

The decline dragged on overall industrial production, which was unchanged and fell short of analysts' expectations.

"It looks pretty bad on the face of it," said Tom Porcelli, an economist at RBC Capital Markets in Manhattan.

Surging exports and efforts by companies to restock their shelves have made recent economic growth look more solid. The factory data did little to change that view, but economists said it suggested the recovery lost a little steam at the close of the first quarter, in part due to headwinds from Europe's debt crisis, which is weighing on global growth.

A separate report on new home construction in March also provided mixed signals.

Housing starts slipped 5.8 percent to a seasonally adjusted annual rate of 654,000 units, the Commerce Department said.

That unwinds some of the incipient recovery seen in recent months in the long-moribund U.S. housing sector.

Also, new permits for home construction surged to their highest level in 3 1/2 years, which could lead to more housing construction in coming months.

Although many economists think home building could add to economic growth this year for the first time since 2005, an oversupply of unsold homes is depressing prices, creating a big hurdle for the sector.

"It's going to be rocky for a while," said Gregory Miller, an economist at SunTrust Banks in Atlanta.