US manufacturing brakes sharply

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US industrial production braked sharply in February, held back by severe winter storms that slammed parts of the country, while manufacturing activity in New York state stalled this month.

Analysts said Monday's data did not alter their views that the factory-led economic recovery remained on track, given weather disruptions and the fact that details of the reports showed underlying strength. They expect a rebound in industrial production in March.

The reports came ahead of a Federal Reserve meeting on interest rates on Tuesday.

The US central bank is expected to hold overnight interest rates in a range of zero to 0.25 per cent and maintain a pledge to keep them ultra-low for an "extended period" to nurture the recovery.

While US manufacturing output fell in February, it rose outside of the auto sector, and mining activity posted a strong gain. In addition, factory employment, shipments and unfilled orders in New York state all rose this month.

"The two reports were positive for the economy and they do indicate that the factory sector will make a positive contribution to growth in the first quarter," said Kenneth Kim, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

The Federal Reserve said industrial output edged up 0.1 per cent last month after increasing 0.9 per cent in January, in line with market expectations. They blamed the slowdown on inclement weather.

The report also showed the amount of the nation's industrial capacity in use hit the highest level in more than a year.

Separately, the New York Fed said its March gauge of manufacturing activity in New York state slipped to 22.86 from 24.91 in February. Markets had expected the measure to fall to 22.00.

US stocks were little moved by the data, but dipped on persistent concerns over possible monetary tightening in China that could slow the global recovery from recession. US government bond prices fell, while the dollar edged higher against the euro and the yen.

Manufacturing has led the economy out of the most severe downturn since the 1930s. But there are indications that consumers - the main engine of the economy - are starting to participate as the labor market improves.

Employment measure soars

While manufacturing activity in New York state slowed this month, the report's employment index rose to its highest level since October 2007 and the inventories measure jumped above zero for the first time in more than a year.

Even more heartening, new orders and shipments soared from the prior month, while the average workweek lengthened markedly and the backlog of orders grew.

"You're seeing a clear evidence of a V-shaped recovery in the manufacturing sector, partly because it shrank so rapidly during the recession but also, there's a lot of positive fundamentals," said Zach Pandl, an economist at Nomura Securities International in New York.

In addition to inclement weather, industrial production last month was curbed by a steep drop in motor vehicle output - likely a reflection of the auto recalls by Toyota. Manufacturing dipped 0.2 per cent after growing 0.9 per cent in January.

Stripping out vehicle assembly, manufacturing rose 0.1 per cent.

"We believe the fundamentals are strong for continued manufacturing recovery driven by pent-up consumer demand, repair and replacement of business equipment, and exports," said Daniel Meckstroth, chief economist at Manufacturers Alliance/MAPI in Arlington, Virginia.

"The minor setback in February is expected to be followed by strong makeup gains in March."

Mining increased 2.0 per cent, adding to the 1.1 per cent rise in January, while utilities gained 0.5 per cent after a 0.6 per cent rise.

Capacity utilisation, a measure of slack in the economy, inched up to 72.7 per cent, the highest since December 2008, from 72.5 per cent in January. That was still 7.9 per centage points below the average from 1972 to 2009, the Fed said.

A third report from the Treasury Department showed foreign investors sold a net $US33.4 ($NZ47.5) billion of all US securities in January but remained net buyers of US Treasury debt.

- Reuters