Factory output up, but economy still lags

U.S. automakers rebounded in July to boost factory production by the most since the Japan crisis, the Federal Reserve said the most since the Japan crisis, the Federal Reserve said Tuesday.

But combined with a decline in new home construction, the mixed data suggest the economy remains fragile. Overall industrial production, which includes output by utilities, mines and factories, rose 0.9 percent last month, the largest gain this year.

Factory output, the biggest component of industrial production, climbed 0.6 percent. It was the greatest increase since the March 11 earthquake in Japan disrupted supply chains.

The auto industry accounted for nearly all of the production gains. Motor vehicles and parts jumped 5.2 percent. Without it, output grew only 0.2 percent.. Also driving industrial production higher was a hot summer, which led to more air conditioners running and boosted utility output by 2.8 percent. Mining output also increased.

The strong rise "suggests that the U.S. economy is not in a recession now, and it's a fairly encouraging sign that it won't slip into one, either," said Paul Dales, senior U.S. economist with Capital Economics.