Automakers rebound in July to lift factory output

WASHINGTON — U.S. automakers rebounded in July to boost factory production by the most since the Japan crisis. But builders broke ground on fewer single-family houses, leaving home construction at depressed levels.

The mixed data suggest 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.

Stocks traded lower after three days of gains. The Dow Jones industrial average fell roughly 127 points in midday trading. Investors seemed to focus on Germany's economy, which stalled in the second quarter. A weaker Germany could slow growth in Europe as it struggles to contain its debt crisis there.

The industrial production report confirmed other data that show 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.