U.S. industrial production unexpectedly fell in March, dragged lower by soft demand seen by utilities and factories, according to a Federal Reserve report released today.

Output dipped 0.2% in March, after an upwardly revised 0.8% rise seen in February. The Fed attributed a 2.3% decline in utilities output to “unseasonably warm weather.” Factory output, which accounts for more than 80% of overall industrial production, was flat.

Capacity in use at factories, utilities and mines also slipped in March, dropping to 76.5% from 76.7% in February. Wall Street had expected utilization to rise to 76.8% and output to show a 0.3% rise.

“After a string of stronger-than-expected data releases, the 0.2% decline in U.S. industrial production in March comes as a disappointment,” says BMO Nesbitt Burns.

“Although this stalls the recent string of stronger-than-expected U.S. economic reports, the negative headline is not indicative of the underlying trend,” Nesbitt says. “We expect both industrial production and capacity utilization to bounce back in April, in line with the snap-back in the regional Fed surveys.”

In other economic news, the University of Michigan’s preliminary reading of its April index of consumer sentiment fell to 93.2 from March’s final reading of 95.8. Economists had expected a median reading of 96.5.

“Both the expectations and present conditions subindices dropped by just over 2.5 points each,” says RBC Financial.” This continues a trend towards lower confidence as measured by this survey after peaking in January,” it notes.