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U.S. factory output increases, helping economy look more resilient


August 15, 2012
By The Associated Press

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The U.S. economy looked more resilient Wednesday after reports showed factories produced more goods in July.

 At the same time, consumer prices stayed flat last month. Low inflation could boost consumers spending and lift growth in the second half of the year.

Economists approached the mostly positive data with some caution. The economy remains weak after a sluggish spring. And a severe drought in the Midwest could send food prices surging later this year and crimp consumer spending.

Still, the gains were encouraging. And they followed other July reports that showed consumers stepped up retail spending and employers created the most jobs since February.

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Factories made more cars, computers and airplanes last month, the Federal Reserve said. That helped drive industrial production, which includes output at factories, mines and utilities, up 0.6 per cent in July from June, the fourth straight increase.

Factory output, the most important component of industrial production, rose 0.5 per cent in July. It was the second straight monthly increase. The gain was driven by a 3.3 per cent surge in output of motor vehicles and parts.

Factory production has risen 21.9 per cent since its recession low hit in June 2009 and is just 1.7 per cent below the pre-recession peak for factory output reached in April 2007.

Still, manufacturing slowed this spring as consumers cut back on spending and businesses invested less in machinery and equipment. Some worry that manufacturing could weaken further in coming months if Europe’s financial crisis and slower global growth cut demand for U.S. exports.

“Despite the deteriorating global backdrop, U.S. manufacturing continues to expand,” said Paul Ashworth, chief U.S. economist at Capital Economics. “Manufacturing is hanging in there, but the question is for how much longer?”

Adding to those worries was a survey from the Federal Reserve Bank of New York that showed manufacturing in the region shrank in August. The Empire State index fell to -5.9, down from a reading of 7.4 in July.

And economists noted that a big reason factory output rose was because automakers kept production lines humming in July, mostly skipping their normal summer shutdowns.