The 0.4 percent increase, following a 0.2 percent gain in June, was in line with what many analysts had expected and provided evidence that manufacturing continues to rebound from last year's sluggish performance. It was the fourth straight monthly advance for output at the nation's factories, mines and utilities.
The Fed report also contained little sign of inflation. It said the nation's industries were operating at 82.3 percent of capacity, up from 82.2 percent in June.
The capacity rate suggests an absence of production bottlenecks that could cause shortages and higher prices.
Output from electric utilities dropped 3.3 percent, reversing the situation this spring in which warmer-than-normal weather boosted output at gas and electric utilities 1.4 percent.
There were other declining sectors in July, the Fed report showed. Output of consumer goods fell 0.5 percent, led by durable goods. Production of automotive products dropped 6.6 percent.
The declines appeared to be in line with other recent data suggesting a slowdown in the economy.
The pullback in consumer goods output may be more important to Fed policy-makers than the overall rise in production because it likely suggests the central bank's recent string of interest rate increases are working.
Growing signs that the red-hot economy began to slow in the late spring and early summer were evidenced last week in the Fed's latest survey of business activity around the country. The survey found slower activity in consumer spending, manufacturing and construction in June and July.
The central bank has boosted interest rates six times over the past 14 months in an effort to slow the economy and keep inflation in check. Many economists believe the Fed will leave rates unchanged at its meeting next Tuesday, preferring to wait and see whether the rate increases it has already approved will be enough to do the job.
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