Industrial production up 0.8 percent in June

WASHINGTON - Industrial production rose significantly in June, reflecting advances in manufacturing, mining and auto production.

The Federal Reserve reported Monday that output at the nation's factories, mines and utilities jumped by 0.8 percent last month following a gain of 0.1 percent in May. The latest increase was stronger than expected; analysts had anticipated an increase of 0.4


The rise in production also marked a 4.5 percent increase over June 2005.

Production of autos and auto parts rose a robust 3.3 percent in June, swinging from a 1.3 percent drop the month before as the industry struggled with soaring gasoline prices that sapped demand for sport utility vehicles.

It was a patch of positive economic news following a series of indications last week of a cooling economy, including continued curtailment of spending in June by American consumers.

At the same time, experts noted, the impressive industrial report could stoke concerns over inflation and prompt Fed policymakers to raise interest rates next month.

''Manufacturers ramped up production in June, and the gains were impressive and broad-based,'' said Joel Naroff, chief economist at Naroff Economic Advisors. ''This strong report can only add to the belief that the (Fed) will hike rates again.''

Fed Chairman Ben Bernanke is testifying before Congress on Wednesday and his words will be closely watched for signals in that regard.

Economic unease deepened last week amid interest rate jitters and escalating violence in the Middle East that carried oil prices to new highs. The spike in oil prices and weak economic reports helped drag stocks lower on Wall Street for three straight days.

On Monday, the June industrial data initially offset the market's unease over the Middle East situation and Citigroup Inc.'s disappointing earnings, as investors sent stock prices higher in early trading. Wall Street limped to a mixed finish. With the violence in Israel and Lebanon continuing into a sixth day and no resolution in sight, the market remained wary despite a sharp drop in oil prices.

According to preliminary calculations, the Dow Jones industrial average edged up 8.01, or 0.07 percent, to 10,747.36 - after sliding 3.17 percent last week.

U.S. mining production rose 1.2 percent in June and manufacturing gained 0.7 percent from the previous month, the Federal Reserve figures showed.

The strength in industrial production in June also included a 1.7 percent rise in output of oil and natural gas.

May's production was revised to a rise of 0.1 percent from a previous decline of the same amount - the first decrease since January.

Economists generally believe that manufacturing will slow in coming months as overall economic growth slows.

The economy expanded at a sizzling pace of 5.6 percent in the first three months of the year but many analysts believe that will slow to around 3 percent in the April-June quarter, as consumers struggle with rising interest rates, soaring

gasoline prices and cooling home sales.

The increase in June put U.S. industry operating at 82.4 percent of capacity, a six-year high, up from a May operating rate of 81.8 percent of capacity.

The Federal Reserve keeps a close watch on the operating rate to see if it is approaching levels where bottlenecks could develop and boost inflationary pressures.