Despite other data showing moderating inflation and weak housing starts, U.S. industrial production came in much better than expected, jumping 0.7% in March.

RBC Financial Group economists note that this is the third consecutive monthly increase in production and indicates that the U.S. manufacturing sector continues to bolt out of its recession. Production volumes now sit back at August 2001 levels but remain below figures of a year ago, it says. “High-tech industries posted very strong and broad based growth in production, with computers and office equipment up 1.2%, communications equipment up 1.7% and semiconductors up 1.4%. Mining and muter vehicles production were both down, though a surge in motor vehicle parts marginally lifted the overall auto sector.”

RBC says that this overall industrial production increase was enough to push the capacity utilization rate up to 75.4%, “which is still among the lowest since the early 1970s and leaves considerable excess capacity with modest near term stateside inflationary concerns.”

BMO Nesbitt Burns notes that U.S. production swung from a 6.7% rate of decline in the fourth quarter to a 2.5% rate of advance in the first quarter of 2002, “consistent with our view that GDP growth will be in the vigourous 4%-to-5% zone”.

“Today marks a watershed day for data watchers concerning the North American economy,” suggests RBC. The expected theme of accelerating U..S business sector activity filling in the void of slowing housing markets is unfolding in an increasingly strong manner. Strong renewed growth in the high-tech industries, however, came as the biggest surprise. As well, less excess capacity, a stronger sustained economy, and expected inflation fears in Canada all relative to the U.S. are sparking interest rate hikes earlier north of the border than south to the possible near term benefit of the Canadian dollar.”