Industrial Output in June Tops Forecasts

Output at U.S. factories, mines and utilities rose more than expected in June, suggesting a strong economy, but an early snapshot of July factory activity showed an unexpected drop, reports indicated Monday.

Industrial production posted a bigger-than-expected 0.8% gain last month and capacity use also topped expectations at 82.4%, a Federal Reserve report showed. Such data could weigh on the inflation-wary central bank.

Capacity use was at its highest since 82.5% in June 2000. Analysts were expecting a 0.4% gain in industrial production and a capacity use rate of 81.9%.

“No doubts, strong figures,” said Tim Mazanec, a senior currency strategist at Investors Bank & Trust in Boston. “It definitely adds to the case, to me, that the Fed will keep on hiking rates.”

An index of manufacturing growth in New York in July, however, fell sharply on declines in new orders and shipments. The New York Federal Reserve Bank’s Empire State general factory index dropped to 15.64 this month from 29.01 in June.

The median forecast of economists polled by Reuters was for a July reading of 20.

Energy prices have jumped in recent weeks amid escalating violence in the Middle East.

Economists said markets were awaiting congressional testimony Wednesday and Thursday from Fed Chairman Ben S. Bernanke for more clues about the direction of the economy and interest rates.

Industrial production rose at an annual rate of 6.6% in the second quarter, the largest quarterly increase since a 7.7% rise in the fourth quarter of 1999. In addition, the 82% capacity-use rate for the April-June quarter was the highest since 82.6% in the second quarter of 2000.

Manufacturing output in June rose 0.7% on gains in automotive production, while mining output jumped 1.2% and utilities output climbed 0.7%.

Manufacturing capacity use last month was 81.1%, the highest since May 2000.