0.8% Surge in Production Rate Fans Inflation Fears

Production at the nation’s factories, mines and utilities surged 0.8% in July, the biggest increase in nine months, the government reported today in another report that prompted economists’ worries about rising inflationary pressures.

The Federal Reserve said the large July advance was double the 0.4% increase in June.

It marked the 10th consecutive month that the index has risen without a decline, and it was the largest advance since a 1.1% increase last October.

Analysts had expected a big advance given the fact that employment at manufacturing plants climbed at the fastest pace this year, according to the Labor Department’s July employment report. However, the consensus forecast was for a rise of around 0.6%.

The manufacturing sector has been the star of the economy this year as American producers, aided by a weak dollar, have enjoyed strong foreign sales.

However, concern that the economy might be growing too rapidly, with demand outstripping production capabilities, was one of the reasons cited by the Federal Reserve when it raised the discount rate last week.

The increase in industrial production came despite the fact that auto output fell during the month. Autos were assembled at an annual rate of 7.1 million units, down from June’s pace of 7.5 million units. The production of light trucks also decreased during the month.

The strength came from a continued surge in the production of business equipment, including computers, that jumped 1% in July following an equally strong 0.9% rise in June.

Production of consumer goods rose 0.3% during the month, reflecting gains in appliance production and non-durable consumer goods.