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Industrial Production in U.S. Climbs for a Fourth Month

Industrial production in the U.S. unexpectedly rose in August, signaling manufacturing will support the world’s largest economy.

Output at factories, mines and utilities climbed 0.2 percent after a 0.9 percent gain in July, figures from the Federal Reserve showed today. Economists had forecast no change, according to the median estimate in a Bloomberg News survey. Factory production, which makes up 75 percent of the total, advanced 0.5 percent.

Overseas demand and capital spending by American companies may keep assembly lines busy and boost manufacturing, which led the recovery from the recession. At the same time, unemployment above 9 percent and the lack of jobs is limiting sales, one reason factories may find it harder to gain speed.

“Manufacturing will continue to expand,” said Kurt Rankin, an economist at PNC Financial Services Group Inc. in Pittsburgh, who accurately projected the gain in industrial production. “Emerging markets are still growing, and that’s giving an opportunity for exports of U.S.-manufactured goods.”

Stocks rallied after the European Central Bank announced new liquidity measures in cooperation with the Federal Reserve. The Standard & Poor’s 500 Index climbed 1 percent to 1,201.04 at 10:12 a.m. in New York.

Other reports today showed consumer prices climbed in August, jobless claims jumped last week and manufacturing in the New York and Philadelphia regions shrank in September.

More Inflation

The cost of living rose 0.4 percent, more than forecast, after a 0.5 percent gain in July, according to a report from the Labor Department. Costs minus fuel and food rose 0.2 percent for a second month.

Applications for unemployment benefits climbed by 11,000 to 428,000 in the week ended Sept. 10 that included the Labor Day holiday, another Labor Department report showed. The number of claims was the highest since the end of June, underscoring the risk of further weakness in the labor market.

The Fed Bank of New York’s general economic index dropped to minus 8.8, the weakest reading since November, from minus 7.7 in August, the branch of the central bank said. The Fed Bank of Philadelphia’s index rose to minus 17.5 in September from minus 30.7 the prior month. Readings less than zero signal contraction.

The regional reports overstated the degree of the slowdown in manufacturing last month. The Institute for Supply Management’s national figure showed factories continued to expand in August while the New York and Philadelphia measures slumped.

Economist Estimates

Estimates of the 83 economists surveyed by Bloomberg ranged from an increase of 0.4 percent in industrial production to a drop of 0.4 percent. Manufacturing accounts for about 12 percent of the economy.

Today’s production report showed factory output climbed after increasing 0.6 percent in July.

Capacity utilization, which measures the amount of a plant that is in use, rose to 77.4 percent from a revised 77.3 percent in July that was lower than previously estimated. The gauge compares with the average of 79.5 percent over the past 20 years.

Mining production, which includes oil drilling, increased 1.2 percent. Utility output dropped 3 percent, as temperatures moderated from the prior month, after a 2.8 percent gain.

Automakers are recovering after a temporary shortage of parts following the earthquake and tsunami in Japan that constrained sales and production.

The output of motor vehicles and parts increased 1.7 percent after a 4.5 percent jump a month earlier, today’s report showed. Excluding autos and parts, manufacturing climbed 0.4 percent after a 0.3 percent July increase.

Business Investment

Production of business equipment increased 0.7 percent after rising 1.1 percent in July, a sign that investment in computers and communications gear continues to climb.

Not all technology makers are optimistic about the outlook for demand. Dallas-based Texas Instruments Inc., the largest maker of analog chips, said on Sept. 8 that third-quarter sales may fall short of prior forecasts, citing a slump in orders for electronics components from customers across its product lines. Two days earlier, chipmaker Altera Corp. said sales may fall this quarter from the prior period, while it previously predicted a gain.

“Since this downturn is macro-driven, we really have no insight as to how long it will take,” Texas Instruments Vice President Ron Slaymaker said on a Sept. 8 conference call. “Orders are weak and we expect, in total, orders will be down from the second quarter.”

Concern about the flagging economy is one reason Fed policy makers may take additional steps to spur growth when they meet this month.

Bernanke’s View

The recovery “has been much less robust than we had hoped,” Fed Chairman Ben S. Bernanke said in a Sept. 8 speech in Minneapolis. At the same time, compared with the household sector, “the business sector generally presents a more upbeat picture,” he said.

Demand from faster-growing foreign markets is backstopping work at factories. The dollar fell 3.3 percent in the year ended August against a basket of currencies from the major trading partners of the U.S., making American-made goods more attractive abroad. Exports climbed to a record $178 billion in July as companies shipped capital goods and automobiles.

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