U.S. factory output rises in January

WASHINGTON -- U.S. factories boosted production in January, capping the biggest back-to-back increases in more than two years, showing manufacturing will remain at the forefront of the expansion.

Output rose 0.7 percent after a revised 1.5 percent gain in December, the best two-month performance since July and August 2009, when the world's largest economy was emerging from the recession, according to figures issued by the Federal Reserve Wednesday in Washington.

Other reports showed home builders turned less pessimistic in February and manufacturing in the New York region grew.

Business investment in new equipment and the need to rebuild inventories as sales improve will probably keep factory assembly lines rolling at the start of 2012. Additionally, a more stable residential real estate market would remove an impediment to the recovery after declines in home construction subtracted from economic growth in each of the past six years.

"Factories remain a major supporting element of the economy as we enter 2012," said Richard DeKaser, deputy chief economist at Parthenon Group in Boston. "The latest reading from the home builders adds to the steady stream of upbeat news on the housing sector."

Total industrial production, which comprises factories, utilities and mining companies, was little changed last month, less than the 0.7 percent gain projected by the median forecast of 81 economists surveyed by Bloomberg News. Estimates ranged from gains of 0.1 percent to 1.2 percent.

Output at utilities slumped 2.5 percent last month as the fourth-warmest January on record cut into electricity and natural gas use. A 1.8 percent drop in mining, which includes oil drilling, also hindered total industrial output.

"Manufacturing is doing pretty well," said Tom Simons, an economist at Jefferies & Co. in Manhattan. "Global demand is holding up pretty well."