Industrial Market, Utility Output Surge

WASHINGTON — Industrial production, helped by a jump in utility output, surged in June at the fastest pace in 16 months, providing the strongest evidence yet that U.S. manufacturing is rebounding.

Meanwhile, wholesale prices were flat last month, matching the benign performance turned in by consumer prices during June.

Taken together, the two reports Friday helped to ease fears that manufacturing, hardest hit in the 2001 recession, was in danger of faltering again or that inflation, battered by high energy prices, was threatening to get out of hand.

“This is about as close as you can get to a Mary Poppins economy – - practically perfect in every way,” said David Wyss, chief economist at Standard & Poor’s in New York.

Investors liked the positive economic news. The Dow Jones industrial average rose 11.94 points to close at 10,640.83, the highest close in four months.

Broader stock indicators also closed modestly higher. The S&P 500 rose 1.42, or 0.12 percent, to 1,227.92, and the Nasdaq composite index gained 3.96, or 0.18 percent, to 2,156.78, beating the previous session’s 2005 high.

Positive inflation data, reports of strong retail sales activity and a sharp dropoff in oil prices combined to give Wall Street a very strong week. The S&P climbed 1.33 percent over the course of the week, and the Nasdaq rose 2.08 percent.

Friday’s industrial report said production at factories, mines and utilities rose by 0.9 percent, more than double what had been expected and three times faster than a 0.3 percent rise in May. It was the best showing since a 1.1 percent increase in February 2004.

More than half of the gain came from a 5.3 percent surge in utility output, reflecting a rebound in demand for electricity to power air conditioners in June following an unusually cool May.

Output in the manufacturing sector was up a solid 0.4 percent in June following an even stronger 0.5 percent rise in May. The gains followed two months of declines in factory output, which had raised worries about the future of this hard-hit sector.

The strength was led by a 2.9 percent rise in production at auto plants after a 0.4 percent rise in May. Production at auto and auto parts plants had fallen the two previous months.

Analysts said automakers had succeeded in trimming excess inventories, helped by the return of attractive financing offers.

Output at mines, a category that includes oil production, rose by 0.4 percent in June following a 0.2 percent May increase. All of the gains pushed the operating rate at factories, mines and utilities up to 80 percent of capacity in June, the highest level in four years.

In a second report, the Labor Department said that wholesale prices were unchanged in June after having fallen by 0.6 percent in May, the largest one-month decline in more than two years.

The good news on wholesale inflation followed a report Thursday showing that consumer prices were also frozen in June after a 0.1 percent drop in May.

Economists predicted that the data would prompt the Federal Reserve to continue raising interest rates at a gradual pace with the 10th quarter-point move expected at the next meeting on Aug. 9. Federal Reserve Chairman Alan Greenspan will deliver a Fed economic forecast to Congress on Wednesday.

Stuart Hoffman, chief economist at PNC Bank Corp. in Pittsburgh, said he was not looking for surprises in Greenspan’s testimony.

“I think he will stress that the economy is continuing to show pretty solid gains in economic growth with inflation remaining subdued,” Hoffman said.