U.S. automakers rebounded in July to boost factory production by the largest amount since the Japan crisis. But builders broke ground on fewer single-family houses, leaving home construction at depressed levels.
The mixed data suggests that the economy remains fragile but is not on the cusp of another recession.
Overall industrial production, which includes output by utilities, mines and factories, rose 0.9 percent last month, the Federal Reserve said Tuesday. That's the largest gain this year.
Factory output, the biggest component of industrial production, climbed 0.6 percent. It was the greatest increase since the March 11 earthquake in Japan disrupted supply chains and slowed production at some U.S. auto plants.
The auto industry accounted for nearly all of the factory production gains. Motor vehicles and parts jumped 5.2 percent. Excluding that category, factory output grew only 0.2 percent.
Also driving industrial production higher was an unseasonably hot summer. That led more people to leave their air conditioners running. Utility output jumped 2.8 percent, the most since December. Mining output also increased.
The strong rise in output "suggests that the U.S. economy is not in a recession now, and it's a fairly encouraging sign that it won't slip into one, either," said Paul Dales, senior U.S. economist with Capital Economics.
Still, growth is likely to stay weak in the second half of the year. High unemployment and a dismal housing market will weigh on consumer spending, Dales said.
The Commerce Department said builders began work on a seasonally adjusted 604,000 homes last month, a 1.5 percent decrease from June. That's half the 1.2 million homes per year that economists say must be built to sustain a healthy housing market.
Single-family homes, which represent 70 percent of home construction, fell 5 percent. Apartment building rose more than 6 percent.
The industrial production report confirmed other data that shows the U.S. economy strengthened at the start of the July-September quarter, after growing at a feeble annual rate of just 0.8 percent in the first half of the year.
Employers added more than twice the number of jobs in July than in the previous two months. The number of people applying for unemployment benefits earlier this month fell below 400,000 for the first time since early April. And consumers spent more on retail goods in July than in any month since March. Manufacturing had been one of the strongest sectors of the U.S. economy in the two years since the recession officially ended. It has weakened in recent months.
Economists had blamed the decline in part on temporary factors. The crisis in Japan caused a parts shortage for zsome U.S. automakers and other manufacturers. High fuel prices left consumers with less money to spend on discretionary goods, such as appliances and furniture.
"The increase in manufacturing production suggests the economy is finally emerging from distortions posed by the Japanese production shutdowns, which wreaked havoc on the global manufacturing supply chain," said Joseph LaVorgna, chief U.S. economist with Deutsche Bank Securities.
Auto production will likely stay high this year. Manufacturers are racing to replace inventories depleted by the Japan disruptions. That should also contribute to overall economic growth, said Michael Robinet, an auto industry analyst with IHS automotive.
But housing is likely to keep dragging on the economy.
The number of homes under construction in July was the fewest in 40 years. Just 413,000 homes are under construction, after accounting for seasonal factors. A decade ago, roughly 1.6 million homes were built.
Building permits, a gauge of future construction, declined 3.2 percent in July. Jill Brown, vice president of economics at Credit Suisse, said that suggests "little forward momentum."
New-home sales fell in June to a seasonally adjusted pace of 312,000 homes per year. That's less than half the 700,000 per year that economists consider to be healthy.