Factory production in the U.S. unexpectedly dropped in March, adding to recent signs that manufacturing is cooling.

Output at factories fell 0.1 percent after a 0.9 percent increase in February that was larger than previously reported, figures from the Federal Reserve showed today in Washington. The median estimate in a Bloomberg survey of economists called for a 0.1 percent rise. Total industrial production climbed 0.4 percent as colder-than-normal temperatures drove the biggest gain in utility use in six years.

Output is slowing as companies restrain inventory-building and global markets soften at a time the U.S. is poised for a projected easing in second-quarter growth as automatic cuts in planned federal spending take effect. Companies such as rail-car maker Greenbrier Cos. expect a better second half, a sign business investment is unlikely to retrench.

“The prior month was very strong so there is probably a return to more normal growth,” Josh Dennerlein, an economist at Bank of America Corp. in New York, said before the report. “The next couple of months are when we could see some weakness as the hit from the sequestration trickles through the economy.” Even so, “manufacturing is still going to be growing,” he said.

The median estimate for total industrial production of the 82 economists surveyed by Bloomberg called for a 0.2 percent gain. Projections ranged from a drop of 0.5 percent to an increase of 0.7 percent. The prior month was revised up to a 1.1 percent increase from a previously reported 0.8 percent advance.

Manufacturing Production

Manufacturing, which makes up 75 percent of total production and accounts for about 12 percent of the economy, was restrained by declines in production last month of metals, computers, electrical equipment and furniture.

One of the bright spots in March was auto making. The output of motor vehicles and parts increased 2.9 percent after a 2 percent gain a month earlier, today’s report showed. Excluding autos and parts, manufacturing production dropped 0.3 percent, the biggest decline since October, after a 0.8 percent rise.

Cars and light trucks sold at a 15.2 million annual pace in March, capping the strongest three months for purchases since early 2008, data from Ward’s Automotive Group showed.

Today’s Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, climbed to 78.5 percent from 78.3 percent the prior month.

Utility output jumped 5.3 percent, the biggest gain since February 2007, after a 2.5 percent advance the previous month.

Mining production, which includes oil drilling, decreased 0.2 percent.

More Orders

Businesses benefiting from gains in orders include Greenbrier, a Lake Oswego, Oregon-based rail-car maker. First- half results were ahead of expectations and the company is “looking forward to a solid second half” of the year, Chief Executive Officer William Furman said in an April 4 earnings conference call.

“There is demand out there,” Furman said on the teleconference. “We’re pretty pleased about the quarter’s momentum and the momentum going forward into the third quarter.”

The rebound in housing is underpinning demand. Builders broke ground on 1.04 million houses at an annualized rate in March, the most since June 2008, a Commerce Department report showed today. The median forecast of economists surveyed by Bloomberg called for a 930,000 pace.

Caterpillar Inc., the world’s largest maker of construction and mining equipment, is among businesses watching economic developments in the U.S. and overseas for signs of improvement.

Housing Rebound

“While we’re encouraged by some recent improvements in economic indicators, there are still uncertainties in the world and the company is ready for any circumstances,” Doug Oberhelman, chief executive officer of Peoria, Illinois-based Caterpillar, said in a statement on April 10.

The economy probably grew at a 3 percent annualized rate from January through March, according to the median forecast in a Bloomberg survey of economists from April 5 to April 9. The expansion will cool this quarter, to a 1.5 percent pace, then reaccelerate to an average 2.4 percent rate in the last six months of 2013.