Industrial production jumps

One of the final stages of the Moto X packaging in a Texas factory. Eric Mack/CNET

WASHINGTON U.S. factories increased output in August by the most in eight months, helped by a robust month at auto plants. The gains are a hopeful sign that manufacturing could help boost economic growth in the second half of the year.

Manufacturing production rose 0.7 percent last month from July, the Federal Reserve said Monday. That's the biggest increase since December. It followed a 0.4 percent decline in July.

Automakers increased production 5.2 percent, after a 4.5 percent decline in July. And factories stepped up production of other goods, including computers and electronics, furniture and business equipment.

Overall industrial production rose 0.4 percent in August following no change in July. Mining, which includes oil production, increased but output at utilities fell for a fifth month.

Factory output is the largest component of industrial production. The strong gain adds to other signs that manufacturing could be rebounding from a weak start this year.

Paul Dales, senior U.S. economist at Capital Economics, said U.S. manufacturers were benefiting from stronger growth overseas.

The 17 countries that use the euro grew in the April-June quarter after six quarters of recession. And a private survey of purchasing managers in China found that manufacturing in that country expanded for the first time after shrinking for three months. China, the world's second-largest economy, is a major market for U.S. companies.

"It makes sense for industry to outperform other parts of the economy when overseas demand is strengthening," Dales said.

The jump in industrial production follows a strong reading from the Institute of Supply Management's closely watched manufacturing survey. The ISM survey said U.S. factory activity expanded in August at the fastest pace since June 2011, buoyed by a rise in new orders rose and stronger demand from overseas.

The U.S. economy grew at an annual rate of 2.5 percent in the April-June quarter. Many economists predict growth is slowing to an annual rate of around 2 percent in the current July-September quarter. But they expect growth will pick up again in the final three months of this year and strengthen next year, as the impact of tax hikes and government spending cuts fade.

"Strong headwinds over the past few quarters, including the sequester and growth issues in both Europe and China, have made it difficult for the recovery to gain momentum," said IHS Global Insight US Economist Erik Johnson. "But the Eurozone is expanding again, and this will support manufacturing activity over the next few quarters."

Federal Reserve officials begin a two-day policy meeting on Tuesday. Many economists expect the Fed will vote at that meeting to reduce its $85 billion per month in bond purchases, although only by small amount. The purchases have been designed to lower long-term interest rates as a way of boosting economic activity and jobs.

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