August 15, 2014 9:20 AM, EDT

Factory Production Jumps 1% on Equipment Demand

Luke Sharrett/Bloomberg News

Factory production increased in July at the fastest pace in five months as capital spending climbed and motor vehicle demand surged, indicating the industry is helping propel the U.S. economy.

The 1% gain at manufacturers followed a 0.3% increase in the prior month that was more than initially estimated, figures from the Federal Reserve in Washington showed. Total industrial production, which also includes mines and utilities, advanced 0.4% for a second month in July.

Production lines have shifted into higher gear as Americans replace aging autos and companies grow more confident about expanding. Stronger demand in overseas markets, which has been a missing ingredient for American producers, would help provide additional momentum.

“We’re seeing a strengthening,” Mike Englund, chief economist at Action Economics said. “The factory sector has looked quite solid this year.”

Total industrial production was projected to rise 0.3%, according to the median forecast in a Bloomberg survey of 82 economists. Estimates ranged from a drop of 0.4% to an increase of 0.7% after a previously reported June gain of 0.2%.

Manufacturing, which makes up 75% of total production, was forecast to increase 0.4%, according to the survey median.

Auto production soared 10.1% in July, the biggest gain since July 2009, after no change a month earlier. Factory output excluding vehicle and parts production climbed 0.4%, the most in four months.

Production of business equipment jumped 1.3%, the most since February. Output of machinery, computers, electronics and transportation equipment increased during the month.

The Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, rose to 79.2% in July from 79.1%.

Utility output declined 3.4% in July following a 0.7% decrease the prior month as cooler conditions reduced demand for air conditioning.