Weak U.S. factory data suggest softer economic growth

Factory production slipped 0.2 percent after declining 0.3 percent in January, the Federal Reserve said on Monday.

"The recovery appears to have hit a soft patch," said Millan Mulraine, deputy chief economist at TD Securities in New York.

Economic activity has softened in recent months, constrained by harsh weather, a strong dollar and weaker demand overseas. The now-settled labor dispute at the country's West Coast ports also acted as a drag.

Data ranging from retail sales to construction and home building have been dour, prompting economists to slash their first-quarter GDP growth estimates to as low as a 1.2 percent annualized pace.

Economists had forecast manufacturing output edging up 0.1 percent last month.

Auto production fell 3 percent in February. There were also declines in the output of machinery, primary metals, computer and electronic products, electrical equipment, appliances and components, and apparel and leather goods.

The cooling likely persisted in March, with a report from the New York Federal Reserve showing its Empire State general business conditions index falling to 6.90 in March from 7.78 in February.

The slowdown was driven by a plunge in new and unfilled orders as well as a moderation in shipments.

"Manufacturing has started 2015 on a softer note than we had expected and if we do not see a pick-up in the next few months we will have to consider notching down our 3 percent real GDP growth forecast for 2015," said John Ryding, chief economist at RDQ Economics in New York.U.S. stocks were trading higher despite the weak data, as the euro strengthened against the dollar, easing some concerns over the impact of a robust greenback on corporate earnings, while prices for U.S. government debt rose.

The dollar fell against a basket of currencies as the soft data were seen reducing the chances of a June interest rate hike by the Federal Reserve. Fed policymakers will meet on Tuesday and Wednesday, with markets expecting that the central bank's policy statement will remove a reference to being "patient" in moving toward a rate hike.

HOMEBUILDER SENTIMENT DROPS

Another report on Monday showed that U.S. homebuilder sentiment declined for a third straight month in March but still indicated that more builders view market conditions as favorable, the National Association of Home Builders said.

The NAHB/Wells Fargo Housing Market index fell to 53 from 55 the month before, the group said in a statement. Economists polled by Reuters had predicted the index would edge up to 56. Readings above 50 mean more builders view market conditions as favorable than poor.

Lower crude oil prices weighed on oil and gas well drilling, and servicing sectors in February, helping to drag mining production down 2.5 percent. It was the second straight monthly decline in mining output.

Utilities production jumped 7.3 percent as a cold snap boosted demand for heating.

The rise in utilities, however, was insufficient to offset the drag from manufacturing and mining, leaving overall industrial production up only 0.1 percent in January.

The amount of manufacturing capacity in use slipped to 77.3 percent last month from 77.6 percent in January. Overall industrial capacity use dipped to 78.9 percent from 79.1 percent, 1.2 percentage points below its long-run average.

Officials at the Fed tend to look at capacity use as a signal of how much "slack" remains in the economy and how much room there is for growth to accelerate before it becomes inflationary.

(Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Paul Simao)