US factory output increases at modest pace ahead of tariffs

US factory output rose at a modest pace in March, a month ahead of President Donald Trump’s announcement of more sweeping tariffs that pose at least a short-term risk for manufacturers.The 0.3% increase in manufacturing production followed a revised 1% February gain that was fuelled by a surge in motor vehicle assemblies, the Federal Reserve said Wednesday. Excluding autos, factory output also rose 0.3% in March.
Overall industrial production fell for the first time in four months. Output at utilities declined on warmer weather, while mining and energy extraction rose.
Growth in manufacturing output, which accounts for three-fourths of industrial production, was fairly steady through the first quarter as many customers boosted orders before the brunt of the tariffs hikes went into place.However, that was before Trump announced on April 2 expansive reciprocal tariffs on US trading partners while also raising duties on most Chinese-made goods in multiple steps. In March, higher taxes on imported steel and aluminium went into effect.

Other manufacturing headwinds include higher costs for some materials as well as the general uncertainty tied to Trump’s uneven implementation of his trade policy that’s made navigating supply chains more challenging. While a number of businesses have announced plans for production facilities in the US, many are also tabling investment plans until the US reaches bilateral trade deals and there’s more clarity on tax policy.

The gain in March manufacturing reflected a second monthly increase in motor vehicle and parts output and a pickup in aerospace equipment production, according to the Fed.

By market group, production of business and military equipment as well as construction supplies climbed, while the output of consumer goods fell on energy.

The Fed’s report showed capacity utilization at factories, a measure of potential output being used, edged up to 77.3%. The overall industrial utilization rate fell to 77.8%.

Other manufacturing reports are showing weakness in the sector. US factory activity contracted in Institute for Supply Management data earlier this month and prices accelerated sharply amid expectations for slower economic growth.

Earlier on Thursday, government figures showed retail sales strengthened at the end of the first quarter. Sales increased 1.4%, the largest advance since early 2023 and powered by a surge in motor vehicle purchases as consumers front-loaded purchases ahead of tariffs.