Industrial output up; Consumer prices flat

U.S. industrial production increased in July for the first time since October as automakers returned from their midyear retooling shut-downs and increased output to meet the demand fueled by the “cash for clunkers” program.

Output from the nation’s factories, mines and utilities increased 0.5 percent in July, the Federal Reserve reported Friday.

It was only the second month that industrial production increased since the deepest, longest postwar recession began in December 2007.

The increase in industrial output indicates that the long-awaited economic recovery will arrive during the second half of this year, as many economists have projected.

The Dow Jones Industrial Average was down 146.84 points, to 9,251.35, in midday trading. The broader Standard & Poor’s 500-stocks Index was at 996.68, down 16.05 points, and the tech-heavy Nasdaq was down 37.02 points, to 1,972.33.

July’s rise in industrial output “is consistent with our forecast for a second-half recovery,” said Tim Quinlan, an economic analyst at Wells Fargo Securities.

Even if the economy turns upward, however, the Fed warned Wednesday that “economic activity is likely to remain weak for a time.”

Manufacturing output, the biggest subgroup of industrial production, increased 1 percent last month after having plunged 17.4 percent since the recession began. Factory output was still nearly 15 percent below July 2008 levels.

Mining output advanced 0.8 percent in July, the Fed reported, while utility production declined 2.4 percent.

Meanwhile, the nation’s cost of living, measured by the consumer price index (CPI), was unchanged in July following a 0.7 percent increase in June, the Labor Department reported Friday.

Over the last 12 months, consumer prices have fallen by 2.1 percent. It was the biggest 12-month decline in prices since January 1951. A year ago, consumer prices had jumped 5.6 percent, the biggest 12-month rise since January 1991, according to Labor Department data.

The jump in inflation a year ago resulted largely from soaring oil prices, which have plunged from their record-breaking levels in mid-2008, causing overall inflation over the past 12 months to turn negative.

The so-called “core” CPI, which excludes price changes in the volatile energy and food sectors, increased just 0.1 percent last month, and has risen 1.5 percent over the past year.

In its statement following its interest-rate policy committee meeting this week, the Fed said, “Substantial resource slack is likely to dampen cost pressures, and the committee expects that inflation will remain subdued for some time.”

U.S. businesses have huge amounts of excess capacity as the economy has suffered its deepest recession since the Great Depression.

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