Output at factories up in August; inflation flat

WASHINGTON - In a sign that manufacturers are leading the economy into a recovery, output from the nation's factories, mines, and utilities posted widespread gains in August.

In a further dose of good news, inflation remained in check as prices scarcely moved last month.

The gains in industrial production were reported yesterday by the Federal Reserve and marked the second straight monthly increase in output. The increase was 0.8 percent, beating analysts' estimates.

In part, the improvement reflected auto sales that were boosted by the government's now-ended "Cash for Clunkers" program. But analysts were impressed that output increased broadly across many industries.

"Vehicles are not the whole story," Nigel Gault, chief U.S. economist at IHS Global Insight Inc., said in a note to clients.

Gault noted that production increased in five of 10 categories of durable goods, including machinery and electrical equipment.

A separate report on manufacturing in the Philadelphia area in September is due today. The Federal Reserve Bank of Philadelphia's monthly Business Outlook Survey is widely watched as an indicator of manufacturing activity. The August survey showed growth in the area's manufacturing sector for the first time since last September.

Nationally, the pace of growth in factory output is expected to slow later this year. That is partly because the stimulative effect of the "Clunkers" program, which issued rebates for people who traded in older gas-guzzlers for new, fuel-efficient models, will fade.

But industrial stockpiles are so low that production should keep increasing even as consumer spending remains weak, economists said.

Companies had cut their stockpiles a record $159.2 billion in the second quarter. Low inventories tend to signal higher output ahead because companies eventually must produce more to refill their depleted stockpiles.

In the second report yesterday, the government said inflation remained nowhere in sight. The Consumer Price Index rose just 0.4 percent nationwide in August, the Bureau of Labor Statistics said. In the Philadelphia area, where the bureau measures inflation bimonthly, prices increased 1.0 percent in the July-to-August period. The increase was led by housing and apparel, but most categories also climbed. Prices for food and medical care fell, the bureau said.