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US factory output rose 0.8 percent in July as automaker productivity accelerated

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WASHINGTON — Auto plants, clothing makers and plastics factories drove a sharp rebound in U.S. manufacturing in July.

U.S. factory production climbed a seasonally adjusted 0.8 percent last month after a revised estimate showed that output had dipped 0.3 percent in June, the Federal Reserve said Friday. The gains suggested that manufacturers are adjusting to the obstacles of a stronger dollar, tepid economic growth abroad and lower oil prices, which have led energy companies to slash their orders for equipment and pipelines.

"Industrial production is turning around after weakness in early 2015," said Stuart Hoffman, chief economist at PNC Financial Services.

Much of the improvement came from motor vehicle output, which surged 10.6 percent in July. Auto sales jumped 5 percent to 1.5 million, with luxury brands such as Acura, Audi, Infiniti, Lincoln and Volvo accounting for double-digit gains.

Output at clothing and leather factories rose 1 percent last month, as did the manufacturing of plastics and rubber products. Some of those gains were offset by reduced output by oil and coal refiners, as well as by a drop in productivity at machinery plants.

Some analysts suggested that the gains in auto production weren't as impressive as the numbers might indicate. Jesse Hurwitz at Barclays Research noted that auto plants generally close temporarily in July to retool for new model lines and that the shutdown this year was shorter than normal. This would mean that the Fed report exaggerated the gains in motor vehicle output last month and that auto production might dip in August.

The Federal Reserve said overall industrial production — which includes not only the key category of manufacturing but also mining and utility output— rose 0.6 percent. Mining, which includes oil and gas wells, rose 0.2 percent last month but remains down 2 percent over the past 12 months. Utility output, which often fluctuates sharply from month to month depending on weather, fell 1 percent.

PHOTO: FILE - In this Monday, June 22, 2015, file photo, a worker helps assemble a helicopter at the AgustaWestland's aircraft manufacturing facility, in Philadelphia. Auto plants, clothing makers and plastics factories drove a sharp rebound in U.S. manufacturing in July 2015. (AP Photo/Matt Rourke, File)
FILE - In this Monday, June 22, 2015, file photo, a worker helps assemble a helicopter at the AgustaWestland's aircraft manufacturing facility, in Philadelphia. Auto plants, clothing makers and plastics factories drove a sharp rebound in U.S. manufacturing in July 2015. (AP Photo/Matt Rourke, File)

Factories have been battered for much of 2015. Winter storms slowed and even stopped some assembly lines in January and February.

The slowdown extended into spring. Orders for equipment and machinery were hurt by the rising value of the dollar, which makes U.S. goods more expensive overseas and depressed exports. Lower oil prices, which slowed orders from energy firms, also reduced output.

The dollar has risen about 20 percent against a basket of foreign currencies in the past 12 months, according to the Fed.

Crude oil prices, which were around $60 per barrel in the spring, fell close to $41 in early trading Friday, levels not seen since the global financial crisis. The decline has forced energy firms to curtail drilling, eliminating much of the need for new pipelines and equipment that had boosted factory orders in years when prices were closer to $100 a barrel.

Over the past 12 months, manufacturing output has risen just 1.5 percent.

Still, the steady consumer demand for autos is a positive sign for a manufacturing sector facing many headwinds. Other indicators show evidence of increased consumer demand that could help support broader economic growth.

Factory orders rose 1.8 percent in June, the government reported earlier this month. Much of the gains came from surging demand for commercial aircraft, a volatile sector that can vary widely from month to month.

A key category that serves as a proxy for business investment plans edged up 0.7 percent after declines in April and May. For the first half of the year, this category has declined 3.5 percent from the same period a year ago and has slowed overall economic growth.

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